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) Cost analysis shall also include appropriate verification that the contractor's cost submissions are in accordance with the contract cost principles and procedures in Part 1-15.

(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

(iv) Prior estimates of historical costs of other contractors manufacturing the same or similar items.

(4) Forecasting future trends in costs from historical cost experience is of primary importance, but care must be taken to insure that the effects of past inefficient or uneconomical practices are not projected into the future. An adequate cost analysis must include an evaluation of trends and their effect on future costs. In cases involving production of recently developed complex equipment, even in periods of relative price stability, trend analysis of basic labor and materials costs should be undertaken.

[30 FR 6581, May 13, 1965, as amended at 37 FR 5296, Mar. 14, 1972; 43 FR 46303, Oct. 6, 1978]

§ 1-3.807-3 Cost or pricing data.1

(a) The contracting officer shall, except as provided in paragraph (b) of this section require the prospective contractor or contractor, as the case may be, to submit written cost or pricing data (see § 1-16.806 for cost or pricing data forms) or to specifically identify such data in writing if actual submission of the data is impracticable, and to certify, by the use of the certificate set forth in § 1-3.807-4, that, to the best of his knowledge and belief, the cost or pricing data submitted or identified was accurate, complete, and current prior to:

(1) The award of any negotiated contract (other than a letter contract) expected to exceed $100,000 in amount;

or

(2) The pricing of any modification 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, when the modification involves aggregate increases and/or decreases in costs, plus applicable profits, expected to exceed $100,000. For example, the requirement applies (i) to a $30,000 modification resulting from a reduction of $70,000 and an increase of $40,000, or (ii) when the modification results in no change in contract price because there is an increase of $200,000 and a reduction of $200,000. However, this requirement does not apply when unrelated and separately priced changes for which cost or pricing data would not be required are included in the same modification for administrative convenience.

(b) The requirements of paragraph (a) of this section need not be applied (1) where the contracting officer determines, in writing, that the price negotiated is based on (i) adequate price competition, (ii) established catalog or market prices of commercial items sold in substantial quantities to the general public, or (iii) prices set by law or regulation, or (2) where, in exceptional cases, the head of the agency or his authorized designee authorizes the waiver of those requirements and

For a document relating to this section, see Appendix Temporary Regulations, appearing at the end of Chapter 1.

states in writing his reasons for such determination (see § 1-3.302(e)).

(c) The furnishing and certification or 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 this action, such as in paragraphs (f) and (g) of this § 1-3.807-3.

(d)(1) Any contractor who is required to submit and certify cost or pricing data in accordance with this § 1-3.807-3 shall be required with his own submission to submit, or arrange for the submission of, accurate, complete and current cost or pricing data from his prospective subcontractors in support of each subcontract cost estimate included in the contractor's submission. This requirement is applicable whenever the contracting officer considers such subcontractor data necessary for good pricing of the prime contract, or, in any event, whenever such subcontractor cost estimate is either (i) $1,000,000 or more, or (ii) both more than $100,000 and more than 10 percent of the prime contractor's proposed contract price. The requirement is not applicable, however, when the contractor in his submission demonstrates to the satisfaction of the contracting officer that a prospective subcontract will be based on adequate price competition, or that a prospective subcontract estimate is based on an established catalog or market price of a commercial item sold in substantial quantities to the general public, or a price set by law or regulation. Except for subcontracts within (i) or (ii) of this paragraph (d)(1), any such requirement for subcontractor cost of pricing data may be limited by the contracting officer to particular subcontract items or classes of items. However, in the case of subcontracts of $100,000 or less, any such requirement shall be subject to limitations comparable to those set forth in § 13.807-3(g) for contracts of $100,000 or

less. Submission of subcontractor cost of pricing data from more than one subcontractor for each subcontract item shall not ordinarily be required if the contractor's subcontract cost estimate is based upon the cost or pricing data of the subcontractor who is most likely ultimately to get the subcontract. Notwithstanding the foregoing, the contractor shall remain obligated to submit other contractor data pertaining to subcontract costs, including other subcontractor quotations, to the extent required by other provisions of this § 1-3.807-3.

(2) Prospective subcontractor cost or pricing data when required shall be accurate, complete and current as of the same date specified in the contractor's certificate. The contractor shall be responsible for updating a prospective subcontractor's data to the above date from the time or original submission by the subcontractor. Failure by the contractor to submit or procure submission of subcontract cost or pricing data as required may be cause for disqualification of the contractor from further consideration for award of the proposed contract. However, when the contractor has generally complied with such subcontract cost or pricing data requirements, his failure to do so for particular subcontracts in exceptional cases may be excused by the contracting officer, if the contractor in his submission demonstrates to the satisfaction of the contracting officer that he has expended his best efforts to comply in all cases but has been unable to do so because of time limitations or other circumstances beyond the control of the contractor. Such excuse, except when limited to an allowance of additional time as provided in this § 1-3.807-3(d)(2)(i), shall be approved by the head of the procuring activity or his designee. For each prospective subcontract so excused, the contracting officer shall either (i) allow additional time for submission of subcontract cost or pricing data up to the date of agreement upon the prime contract price; (ii) withdraw the requirement for such subcontract cost or pricing data if he deems that cost or pricing data or other information submitted by the contractor is adequate to support the subcontract estimate;

(iii) reserve such subcontract item for future pricing by reaching agreement upon the contract price subject to a contract provision calling for adjustment of the contract price within a stipulated ceiling on the basis of subcontract or other cost or pricing data required to be submitted thereafter pursuant to paragraph (d)(5) of this § 1-3.807-3 or otherwise (see § 1-3.80710(c); (iv) consider another contract type; or (v) make other arrangements as he deems appropriate to provide an adequate basis for agreement upon contract price. Also, for each subcontract so excused, the contractor shall remain obligated to obtain subcontractor cost or pricing data as provided in § 1-3.807-3(d)(5).

(3) The requirements under § 13.807-(d) (1) and (2), modified as appropriate to relate to a higher tier subcontractor rather than the prime contractor, shall apply to lower tier subcontracts under subcontracts for which subcontractor cost or pricing data is required by § 1-3.807-3(d) (1) and (2).

(4) If the cost or pricing data required by paragraph (a) of this § 13.807-3 is not adequate for the purpose, the contractor shall be required to support subcontract cost estimates below the minima set forth in § 13.807-3(d)(1) (i) and (ii), by any additional data or information needed to establish a reasonable contract (not necessarily subcontract) price. In the last analysis, the contracting officer must satisfy himself that the negotiated contract price is reasonable. For this purpose, he should require whatever additional contractor or subcontractor data is reasonably necessary.

(5) Any contractor who has been required to submit and certify cost or pricing data in accordance with this § 1-3.807-3 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, notwithstanding any prior submission from subcontractors pursuant to this § 1-3.807-3(d).

(6) Cost or pricing data furnished by a subcontractor or a prospective subcontractor pursuant to this § 1-3.807-3 must be submitted to the prime contractor or higher-tier subcontractor. It

is the responsibility of the prime contractor and higher-tier subcontractor to review and evaluate the subcontract proposal and accompanying cost or pricing data and furnish the results of such review and evaluation to the Government as part of their cost or pricing data submission.

(e)(1) When, in the contracting officer's opinion, the prime or higher-tier subcontractor's analysis of the subcontract proposal is inadequate, the contracting officer will return the analysis package to the prime for a re-accomplishment of the analysis. The contracting officer should indicate the areas of inadequacy of review.

(2) It is the prime contractor's responsibility to accomplish or cause the accomplishment of the additional review required and resubmission of the package to the contracting officer. (3) If the prime or higher-tier subcontractor is unable to accomplish the required additional analysis for justifiable reason, the Government will assist in the performance of the limited additional review required. The prime contractor must submit in these instances convincing evidence to the contracting officer that the prime or higher-tier subcontractor is unable to accomplish the additional analysis either because the additional review would jeopardize the subcontractor's competitive position or proprietary data is involved.

(4) There may be other occasions when a prospective prime contractor or higher-tier subcontractor will request the contracting officer's assistance to perform or assist in performing a limited or complete review and evaluation of a subcontractor's proposal, in lieu of performing this work himself. The contracting officer should make arrangements for such assistance only when, in his opinion, it Iwould be in the best interests of the Government to perform this contractor responsibility. Such assistance should generally be provided only when:

(i) There is a business relationship between the prime contractor and subcontractor which is not conducive to independence and objectivity, as in the case of a parent and subsidiary, or when the prime and subcontracting

roles of companies are frequently reversed; or

(ii) The contractor is a sole source and the subcontractor costs represent a substantial part of the prime contractor's costs.

(5) There may also be situations when, in analyzing a contractor's proposal or negotiating a prime contract, the contracting officer considers it necessary to validate the prime contractor's review and evaluation of the subcontractor's proposal required

under this § 1-3.807-3(d). The purpose would be to satisfy the Government, not the prime contractor, that these elements of the prime contractor's total proposed price are reasonable. This can be accomplished by the contracting officer requesting that a review of the proposal of one or more major subcontractors be performed by cognizant Government personnel (see § 1-3.801-3).

(f) When there is adequate price competition or when prices are set by law or regulation, cost or pricing data shall not be requested regardless of the dollar amount involved. 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 as such at 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 being procured and the quantity 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 § 1-3.8071(b)(2), any requirement for cost or pricing data should be limited to that pertaining to the differences between the items, if this limitation is consistent with ensuring reasonableness of the price.

(g)(1) Certified cost or pricing data shall not be requested prior to the award of any contract anticipated to be for $25,000 or less and generally should not be requested for modifications in those amounts. There should be relatively few instances where certified cost or pricing data and the inclusion of defective pricing clauses would be justified in awards between $25,000 and $100,000. In most such awards, the administrative costs will outweigh the benefits which might otherwise accrue from receipt of certified cost or pricing data. Accordingly, all other means of determining reasonableness of price should be utilized. When less than complete cost analysis (e.g., analysis of only specific factors) will provide a reasonable pricing result (see § 13.807-2(a)) on awards under $100,000 without the submission of complete cost or pricing data, the contracting officer shall request, without certification, only that data which he considers adequate to support the limited extent of the cost analysis required.

(2) Although cost or pricing data was requested in the solicitation, a certification of cost or pricing data shall not be requested in connection with the award of any contract of any dollar value where 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.

(h)(1) "Cost or pricing data" as used in this Subpart 1-3.8 consists of all facts existing up to the time of agreement on price which prudent buyers and sellers would reasonably expect to have a significant effect on the price negotiations. The definition of cost or pricing data embraces more than his

torical accounting 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, makeor-buy decisions, and new source solicitations, rebates and discounts, 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 consists 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 regarding 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.

(2) The requirement for submission of cost or pricing data is met when all accurate cost or pricing data reasonably available (see § 1-3.807-5(a)(1)) to the contractor at the time of agreement on price is submitted in writing, or specifically identified in writing if actual submission of the data is impracticable, to the contracting officer or his representative. The distinction between the “submission" of cost or pricing data and the "making available" of records should be clearly understood. The mere availability of books, records, and other documents for verification purposes does not constitute submission of cost or pricing data.

(i) Solicitations, including invitations for bids, requests for proposals, or requests for quotations for procurements expected to exceed $100,000 shall (1) contain information as to the requirements for cost or pricing data and (2) incorporate the (i) applicable clauses in §§ 1-3.814-1, 1-3.814-2, and 1-3.814-3, and (ii) certificate in § 13.807-4 if certification of cost or pric

(k) Negotiated final pricing actions such as total final price agreement under fixed-price incentive and rede terminable contracts or termination settlement agreements under termi nated contracts, are contract modifica tions for which certified cost or pric ing data are required in accordance with paragraph (a)(2) of this § 1-3.807-1 3. A certificate in accordance with § 13.807-4 shall be submitted as soon as practicable after agreement is reachec on the amount of the modification. A certificate is required when the amount of the total price agreement or of the final termination settlement agreement exceeds $100,000.

[34 FR 2660, Feb. 27, 1969, as amended at 37 FR 610, Jan. 14, 1972; 39 FR 1752, Jan. 14, 1 1974; 39 FR 44453, Dec. 24, 1974; 43 FR 11987, Mar. 23, 1978; 43 FR 46304, Oct. 6, 1978]

§ 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 only one certificate which shall be submitted 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 in writing, or specifically identified in writing if actual submission of the data is impracticable (see § 1-3.807-3(h)(2)), to the Contracting Officer or his representative in support of

'For definition of "cost or pricing data," see FPR § 1-3.807-3.

2 Describe the proposal, quotation, request for price adjustments, or other submission involved, giving appropriate identifying number (e.g., RFP No.