items to be identified and justified without resort to cost analysis.

§ 1-3.807-2 Requirements for price or cost analysis.

(a) General. Some form of price or cost analysis should be made in connection with every negotiated procurement action. The method and degree of analysis, however, is dependent on the facts surrounding the particular procurement and pricing situation. Cost. analysis shall be performed in accordance with paragraph (c) of this section when cost or pricing data is required to be submitted under the conditions described in § 1-3.807-3; however, the extent of the cost analysis should be that necessary to assure reasonableness of the pricing result, taking into consideration the amount of the proposed contract and the cost and time needed to accumulate the necessary data for analysis. Price analysis shall be used in all other instances to determine the reasonableness of the proposed contract price. Price analysis may also be useful in corroborating the overall reasonableness of a proposed price where the determination of reasonableness was developed through cost analysis.

(b) Price analysis. (1) Price analysis is the process of examining and evaluating a prospective price without evaluation of the separate cost elements and proposed profit of the individual prospective supplier whose price is being evaluated. Price analysis may be accomplished in various ways, including the following:

(i) The comparison of the price quotations submitted;

(ii) The comparison of prior quotations and contract prices with current quotations for the same or similar end items (to provide a suitable basis for comparison, appropriate allowances must be made for differences in such factors as specifications, quantities ordered, time for delivery, Government-furnished materials, and experienced trends of improvement in production efficiency; it must also be recognized that such comparsion may not detect an unreasonable current quotation unless the reasonableness of the prior prices was established and unless changes in the general level of business and prices have been considered);

(iii) The use of rough yardsticks (such as dollars per pound, per horsepower, or other units) to point up apparent gross

inconsistencies which should be subjected to greater pricing inquiry;

(iv) The comparison of prices set forth in published price lists issued on a competitive basis, published market prices of commodities, and similar indicia, together with discount or rebate arrangements; and

(v) The comparison of proposed prices with estimates of cost independently developed by personnel within the contracing activity.

(2) Price analysis techniques should be used to support or supplement cost analysis wherever appropriate.

(c) Cost analysis. (1) Cost analysis is the review and evaluation of a contractor's cost or pricing data (see § 1-3.807-3) and of the judgmental factors applied in projecting from the data to the estimated costs, in order to form an opinion on the degree to which the contractor's proposed costs represent what performance of the contract should cost, assuming reasonable economy and efficiency. It includes the appropriate verification of cost data, the evaluation of specific elements of costs, and the projection of these data to determine the effect on prices of such factors as:

(i) The necessity for certain costs; (ii) The reasonableness of amounts estimated for the necessary costs;

(iii) Allowances for contingencies; (iv) The basis used for allocation of overhead costs; and

(v) The appropriateness of allocations of particular overhead costs to the proposed contract.

(2) Appropriate consideration should be given to Part 1-15, which contains general cost principles and procedures for the determination and allowance of costs in connection with the negotiation of cost-reimbursement type contracts, as well as guidelines for use, where appropriate, in the evaluation of costs in connection with negotiated fixed-price type contracts.

(3) Among the evaluations that should be made where the necessary data are available are comparisons of a contractor's or offeror's current estimated costs with:

(i) Actual costs previously incurred by the contractor or offeror;

(ii) The contractor's or offeror's last prior cost estimate for the same or a similar item or with a series of his prior estimates;

(iii) Current cost estimates from other possible sources; and

(a) The contracting officer shall, except as provided in paragraph (b) of this section, require the prospective contractor or contractors, as the case may be, to submit in writing cost or pricing data and to certify, by use of the certificate in § 1-3.807-4, that, to the best of his knowledge and belief, the cost or pricing data he submitted was accurate, complete, and current, prior to:

(1) The award of any cost-reimbursement type, time and material, laborhour, incentive, or price redeterminable contract expected to exceed $100,000 in amount.

(2) The award of any firm fixed-price, or fixed-price with escalation, negotiated contract expected to exceed $100,000 in amount.

(3) The pricing of any contract modification expected to exceed $100,000 in amount to any formally advertised or negotiated contract whether or not cost or pricing data was required in connection with the initial pricing of the contract.

(b) The requirements of paragraph (a) of this section need not be applied where, in the case of (1) thereof, construction contracts or basic research contracts with educational institutions are involved; where, in the case of (2) and (3) thereof, it is determined by the contracting officer that the price negotiated is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation; or where, in exceptional cases, the head of the agency or his authorized designee authorizes the waiver of those requirements and states in writing his reasons for such determination (see § 1-3.302(e)).

(c) The furnishing and certification of cost or pricing data shall be required

prior to the award of any negotiated contract not expected to exceed $100,000 in amount, or prior to the pricing of any contract modification not expected to exceed $100,000 in amount, to any formally advertised or negotiated contract whether or not cost or pricing data were required in connection with the initial pricing of the contract: Provided, That it is considered that the circumstances warrant such action. However, certification of the data shall not be required in the case of cost and cost-sharing contracts, the estimated cost of which does not exceed $100,000 and under which the contractor receives no fee.

(d) Any contractor who has been required to submit and certify cost or pricing data in accordance with this § 13.807-3 shall also be required to obtain cost or pricing data from his subcontractors under the circumstances set forth in the appropriate clause in § 1-3.814-3.

(e) Whenever a certificate of cost or pricing data is required, the applicable clause in § 1-3.814-1 shall be included in the contract, and the appropriate clauses in §§ 1-3.814-2 and 1-3.814-3 shall be used if required by those sections. Where such a certificate is required in accordance with § 1-3.807-3(c), those clauses shall be modified, as appropriate.

(f) When there is adequate price competition, cost or pricing data should not be requested regardless of the dollar amount involved. Where, however, cost or pricing data has been furnished, it shall be considered in making decisions on contract prices. As a general rule, cost or pricing data should not be requested when it has been determined that proposed prices are, or are based on, established catalog or market prices of commercial items sold in substantial quantities to the general public. Exceptions to the general rule include the following:

(1) Where, despite the willingness of a number of commercial purchasers to buy an item at such a catalog or market price, the contracting officer finds that that price is not reasonable and supports such finding by an enumeration of the facts upon which it is based, cost or pricing data may be requested if necessary to establish a reasonable price: Provided, That such finding is approved at a level, if any, above the contracting officer.

(2) Cost or pricing data may be requested, if necessary, where there is such

a disparity between the quantity of the item being procured and the quantity of the same item for which there is such a catalog or market price that the reasonableness of the proposed price cannot be determined by comparing the proposed price with the market or catalog price. Where an item is substantially similar to a commercial item for which there is an established catalog or market price at which substantial quantities are sold to the general public, but the offered price of the former is not considered to be "based on" the price of the latter in accordance with § 1-3.807-1(b) (2), any requirement for cost or pricing data should be limited to that pertaining to the differences between the two items, if this limitation is consistent with assuring reasonableness of the price.

(g) The provisions of this paragraph (g) do not apply to awards of costreimbursement type, time and material, labor-hour, incentive, or price redeterminable contracts. Cost or pricing data shall not be requested prior to the award of any contract anticipated to be for $2,500 or less and generally should not be requested for modifications in those amounts. In procurements where it is anticipated that the contract award or modification will be between $2,500 and $10,000, cost or pricing data generally should not be requested. In almost all awards between $2,500 and $10,000 and modifications of $10,000 or less, the administrative costs will outweigh the pricing benefits which might otherwise accrue and some form of price analysis is almost always adequate in these situations. With respect to procurements where the amount of the award or modification is anticipated to be between $10,000 and $100,000, cost analysis and the obtaining of cost or pricing data from contractors shall be limited to cases where no satisfactory method of price analysis can be found.

(h) "Cost or pricing data" as used in this Subpart 1-3.8 refers to that portion of the contractor's submission which is factual. The requirement for "cost or pricing data" subject to certification is satisfied when all facts reasonably available to the contractor up to the time of agreement on price and which might reasonably be expected to affect the price negotiations are accurately disclosed to the contracting officer or his representative. The definition of cost or pricing data embraces more than historical ac

counting data; it also includes, where applicable, such factors as vendor quotations, nonrecurring costs, changes in production methods and production or procurement volume, unit cost trends such as those associated with labor efficiency, and make-or-buy decisions or any other management decisions which could reasonably be expected to have a significant bearing on costs under the proposed contract. In short, cost or pricing data consist of all facts which can reasonably be expected to contribute to sound estimates of future costs as well as to the validity of costs already incurred. Cost or pricing data, being factual, is that type of information which can be verified. Because the contractor's certificate pertains to "cost or pricing data," it does not make representations as to the accuracy of the contractor's judgment as to the estimated portion of future costs or projections. It does, however, apply to the data upon which the contractor's judgment is based. This distinction between fact and judgment should be clearly understood.

[30 F.R. 6581, May 13, 1965]

§ 1-3.807-4 Certificate of current cost or pricing data.

Where a certification of cost or pricing data is required in accordance with § 1-3.807-3, a certificate in the form set. forth below shall be included in the contract file along with the documents supporting the negotiation. The contractor shall be required to submit the certificate as soon as practicable after agreement is reached on the contract price.

CERTIFICATE OF CURRENT COST OR PRICING DATA

This is to certify that, to the best of my knowledge and belief, cost or pricing data* submitted to the Contracting Officer or his representative in support of

agreement information showing that the negotiated price is not based on accurate, complete, and current data. Contractors are expected to make a reasonable check to ascertain whether the concern had any information not personally known to the contractor's negotiator at the time of the agreement and which, in accordance with FPR § 1-3.807-3, should be disclosed to the contracting officer for his consideration. Contractors are not expected to make a complete recheck of all data or develop a new cost estimate after the date of agreement and prior to execution of the contract. However, execution of a Certificate of Current Cost or Pricing Data is not intended to relieve a contractor of the responsibility for disclosing circumstances or events, happening subsequent to the date of certification but known to the contractor prior to the date of contract execution, which could reasonably be expected to have a significant bearing on costs under the proposed contract.

[30 F.R. 6582, May 15, 1965]

§ 1-3.807-5 Defective cost or pricing data.

(a) Where any price to the Government, including profit or fee and including price adjustments, must be negotiated largely on the basis of cost or pricing data furnished by the contractor, it is essential that all data that might reasonably affect the price negotiations be disclosed and that such data be accurate, complete, and current (see § 1-3.807-3). If an agreed price includes amounts which can only be attributed to erroneous or incomplete cost or pricing data, it is not a fair price and the resultant profits are not earned profits. Where negotiations are to be conducted on the basis of full disclosure, failure of one party to proceed on that basis results in something less than full mutual assent to the price negotiated so that, in this sense, the price is not fully agreed to, and fairness warrants its adjustment. 'The clauses set forth in § 1-3.814-1 are designed to give the Government in such a case an enforceable contract right to a price adjustment, that is, to a reduction in the price to what it demonstrably would have been if the contractor had not failed to disclose significant and reasonably available data or had not furnished inaccurate data.

(b) Under the "Price Reduction for Defective Cost or Pricing Data" clauses in § 1-3.814-1, the Government's right to reduce the prime contract price extends to cases where the prime contract price was increased by any significant sums because a subcontractor furnished

defective cost or pricing data in connection with a subcontract where a certificate of cost or pricing data was or should have been furnished. These clauses also provide that the prime contractor and higher tier subcontractors shall include similar clauses in certain of their subcontracts to provide them with comparable rights to price reductions. In order to secure price reductions based on defective cost or pricing data furnished by a subcontractor, however, the Government, the prime contractor, or higher tier subcontractor must be able to show that cost or pricing data furnished by subcontractors was, in fact defective. In some cases, as where the defective nature of a subcontractor's data is only disclosed by Government audit, the information necessary to support a reduction in prime contract and subcontractor prices may be available only from the Government. To the extent necessary to secure a prime contract price reduction, the contracting officer should make such necessary information available upon request to the prime contractor or higher tier subcontractors; however, if the release of such information would compromise Government security or disclose trade secrets or other confidential business information, it shall be made available only under conditions that will fully protect it from improper disclosure. Information made available pursuant to this paragraph shall be limited to that used as the basis for the prime contract price reduction.

(c) Inasmuch as price reductions under the Price Reduction for Defective Cost or Pricing Data clauses may involve first- and lower-tier subcontractors as well as the prime contractor, the contracting officer should give the prime contractor reasonable advance notice before making a determination to reduce the contract price under such clauses, in order to afford the prime contractor an opportunity to take any action deemed advisable by him, particularly in connection with any subcontracts that may be involved.

§ 1-3.807-6 Refusal to provide cost or pricing data.

If cost or pricing data from the contractor (or offeror) are required to permit adequate analysis of the contractor's proposal in accordance with § 1-3.807-3 and the contractor has refused to provide such data, the contracting officer shall

try to persuade the contractor to furnish such data. If the contractor persists in his refusal to provide necessary data, the contracting officer shall withhold making the award or price adjustment and refer the case to higher authority within the agency. Such referral shall include a complete statement of the attempts made to resolve the matter, including (a) steps taken to secure essential cost data, (b) efforts to secure the contractor's cooperation in the establishment of a satisfactory business relationship, (c) any assurances offered, such as agreements to adequately safeguard information furnished, and (d) a statement concerning the practicability of obtaining the supplies or services from another source of supply. § 1-3.807-7 Unacceptable

for pricing negotiations.

substitutes

A certificate of cost or pricing data (see § 1-3.807-4) shall not be considered a substitute for examination and analysis of the contractor's proposal. Contracting officers shall not rely on profit limiting statutes as remedies for ineffective pricing.

§ 1-3.807-8 Evaluation and pricing of individual contracts.

Each contract shall be priced separately and independently, and no consideration shall be given to losses or profits realized or anticipated in the performance of other contracts. This prohibition neither prevents the negotiation of fixed overhead and other rates applicable to several contracts during annual or other specific periods nor prohibits forward pricing agreements applicable to several contracts. A proposed price reduction under another contract or other contracts shall not be used as an evaluation factor.

§ 1-3.807-9 Specified contingencies.

When a contract is to include a provision for an upward adjustment of price upon the happening of a specified contingency (e.g., escalation clauses, Government-furnished property clauses, tax clauses), the contract price should not include any amount in anticipation of such contingency.

§ 1-3.807-10 Subcontracting considerations in cost analysis.

(a) The amount and quality of subcontracting may be a major factor influencing price. Since a large portion of

the procurement dollar is spent by prime contractors in subcontracting for work, raw materials, parts, and components, efficient purchasing practices by a contractor will contribute heavily toward efficient and economical production. While basic responsibility rests with the prime contractor for decisions to make or buy, for selection of subcontractors, and for subcontract prices and subcontract performance, the contracting officer must have adequate knowledge of those elements and their effect on prime contract prices. Therefore, contractors' "make-or-buy" programs and proposed subcontracts should be reviewed in accordance with Subpart 1-3.9 and the information from such review should be used in negotiating prime contract prices. Even though not specifically required by Subpart 1-3.9, the contracting officer should, where appropriate, elicit from the offeror or contractor information concerning:

(1) His purchasing practices;

(2) The principal components to be subcontracted and the contemplated subcontractors, including (i) the degree of competition obtained, (ii) cost or price analyses or price comparisons accomplished, including accurate, complete, and current cost or pricing data, and (iii) the extent of subcontract supervision;

(3) The types of subcontracts; i.e., firm fixed-price or other (see § 1-3.401); and

(4) The estimated total extent of subcontracting, including procurement of purchased parts and materials.

(b) In the review of subcontracting there should be assurance that the contractors obtain competition, if available, from qualified sources in their award of subcontracts to the extent consistent with the procurement of the required services or supplies. Contractors shall be required to undertake appropriate price analysis (see § 1-3.807-2(b)) in all significant subcontract transactions, and to undertake cost analysis (see § 1-3.8072(c)) if competition is not available or does not yield reasonable subcontract prices. Where the contracting officer's consent to subcontract is required (see § 1-3.903), price or cost analysis shall be required as a condition to such consent.

(c) Where subcontracts are placed on a price redetermination or fixed-price incentive basis, it is particularly important in negotiating revisions of prime contract