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submitted proposals within a competitive range, price and other factors considered, except that this requirement need not necessarily be applied to:

(1) Procurements not In excess of $2,500;

(2) Procurements in which rates or prices are fixed by law or regulations;

(3) Procurements in which time of delivery will not permit such discussions;

(4) Procurements of the set-aside portion of partial set-asides or by small business restricted advertising; or

(5) Procurements in which it can be clearly demonstrated from the existence of adequate competition or accurate prior cost experience with the product or service that acceptance of the most favorable initial proposal without discussion would result in a fair and reasonable price: Provided, That the request for proposals contains a notice to all offerers of the possibility that award may be made without discussion of proposals received and, hence, that proposals should be submitted initially on the most favorable terms, from a price and technical standpoint, which the offeror can submit to the Government. In any case where there is uncertainty as to the pricing or technical aspects of any proposals, the contracting officer shall not make award without further exploration and discussion prior to award. Also, when the proposal most advantageous to the Government involves a material departure from the stated requirements, consideration shall be given to offering the other firms which submitted proposals an opportunity to submit new proposals on a technical basis which is comparable to that of the most advantageous proposal: Provided, That this can be done without revealing to the other firms any information which the offeror does not want disclosed to the public (see § 1-3 103(b)).

(b) Whenever negotiations are conducted with more than one offeror, no indication shall be given to any offeror of a price which must be met to obtain further consideration since such practice constitutes an auction technique which must be avoided. Likewise, no offeror shall be advised of his relative standing with other offerers as to price or be furnished information as to the prices offered by other offerers. After receipt of proposals, no information regarding the number or identity of the offerers par

ticipating in the negotiations shall be made available to the public or to any one whose official duties do not require such knowledge. Whenever negotiations are conducted with several offerers, while such negotiations may be conducted successively, all offerers selected to participate in such negotiations (see § 1-3.805— Ha)) shall be offered an equitable opportunity to submit such price, technic&l. or other revisions in their proposals as may result from the negotiations. All such offerers shall be informed of the specified date (and time if desired) of the closing of negotiations and that any revisions to their proposals should be submitted by that date. In addition, all such offerers shall be informed that after the specified date for the closing of negotiations, no information (other than pre-award notice of unacceptable proposals or offers) will be furnished to any offeror until award has been made. For the requirements and limitations concerning the furnishing of information after awards have been made, see § 1-3.103.

(c) Except where cost-reimbursement type contracts are to be used (see I 1-3.805-2), a request for proposals may provide that after receipt of initial technical proposals, such proposals will be evaluated to determine those which are acceptable to the Government or which. after discussion, can be made acceptable, and upon submission of prices thereafter, award shall be made to that offeror of an acceptable proposal who is the low responsible offeror.

(d) When, during negotiations, a substantial change occurs in the Government's requirements or a decision is reached to relax, increase, or otherwise modify the scope of the work or statement of requirements, such change or modification shall be made in writing as an amendment to the request for proposals, and a copy shall be furnished to each prospective contractor. Oral advice of change or modification may be given if (1) the changes involved are not complex in nature, (2) all prospective contractors are notified simultaneously (preferably by a meeting with the contracting officer), and (3) a record is made of the oral advice given. In such instances, however, the oral advice should be promptly followed by a written amendment verifying such oral advice previously given. The dissemination of Items to be identified and justified without resort to cost analysis.

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In selecting the contractor for a costreimbursement type contract, estimated costs of contract performance and proposed fees should not be considered as controlling, since in this type of contract advance estimates of cost may not provide valid indicators of final actual costs. There is no requirement that costreimbursement type contracts be awarded on the basis of either (a) the lowest proposed cost, (b) the lowest proposed fee. or <c) the lowest total estimated cost plus proposed fee. The award of cost-reimbursement type contracts primarily on the basis of estimated costs may encourage the submission of unrealistically low estimates and increase the likelihood of cost overruns. The cost estimate is important to determine the prospective contractor's understanding of the project and ability to organize and perform the contract. The agreed fee must be within the limits prescribed by law and agency procedures and appropriate to the work to be performed see $ 1-3.808). Beyond this, however, the primary consideration in determining to whom the award shall be made is: which contractor can perform the contract in a manner most advantageous to the Government.

i 1-3.8O6 Cost, profit, and price relationships.

(a) Where products are sold in the open market, costs are not necessarily the controlling factor in establishing a particular seller's price. Similarly, where competition may be ineffective or lacking. estimated costs plus estimated profit are not the only pricing criteria. In some cases, the price appropriately may represent only a part of the seller's cost and include no estimate for profit or fixed fee. as in research and development projects where the contractor is willing to share part of the costs. In other cases, price may be controlled by competition as set forth in { 1-3. 805-1 < a) . The ob;ective of the contracting officer shall

be to negotiate fair and reasonable prices in which due weight is given to all relevant factors, including those in $ 1-3.102.

(b) Profit or fee is only one elemer of price and normally represents i smaller proportion of the total price than do such other estimated elements as labor and material. While the public interest requires that excessive profits be avoided, the contracting officer should not become so preoccupied with particular elements of a contractor's estimate of cost and profit that the most important consideration, the total price itself, is distorted or diminished in its significance. Government procurement is primarily concerned with the reasonableness of the price which the Government pays and only secondarily with the eventual cost and profit to the contractor.

§ 1-3.807 Pricing techniques. § 1-3.807-1 General.

(a) Policies set forth in this Subpart 1-3.8 may be applied in a variety of ways in the evaluation of offerers' or contractors' proposals and in the negotiation of contract prices. This i 1-3.807 describes the principal price and cost evaluation techniques and the circumstances under which each may be used. They are equally applicable to initial and subsequent price negotiations.

(b) For the purpose of this § 1-3.807. the terms "adequate price competition" and "established catalog or market prices of commercial items sold in substantial quantities to the general public" shall be construed in accordance with the following general guidelines.

(1) Adequate price competition, (i) Price competition exists if offers are solicited and (A) at least two responsible offerers (B) who can satisfy the purchaser's (e.g., the Government's) requirements (C) independently contend for a contract to be awarded to the responsive and responsible offerer submitting the lowest evaluated price <D) by submitting priced offers respons ve to the expressed requirements of the solicitation. Whether there is price competition for a given procurement is a matter of judgment to be based on evaluation of whether each of the foregoing conditions (A) through (D) is satisfied. Generally, in making this judgment, the smaller the number of offerers, the greater the need for close evaluation.

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

(a) General. Some form of price or cost analysis should be made in connection with every negotiated procurement action. The presence of adequate price competition, however, limits considerably the degree of analysis required. Cost data shall not be requested when the contracting officer anticipates that there will be adequate price competition. However, if he determines, after proposals have been submitted, that there is not, in fact, adequate price competition, cost data should then be requested, unless there are other bases (e.g., pricing data) available for evaluating the reasonableness of the quoted price (see paragraphs (a) and (e) of §1-3.807-3). When there is not adequate price competition and cost analysis is necessary, the extent of the analysis should be limited to that necessary to assure reasonableness of the price.

fl>) Price analysis. (1) Price analysis 15 the process of examining and evaluating a prospective price by the use of price data, not including a contractor's or subcontractor's cost data. Price analysis may be accomplished in various ways. Including the following:

U) The comparison of the price quotations submitted;

(11) 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 the general level of business and prices);

<Ui) 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 de

veloped by personnel within the contracting activity.

(2) Price analysis, without resort to cost analysis, normally shall be used to support the reasonableness of awards when there is adequate price competition or when price analysis by itself provides a reasonable basis for award consistent with the requirements of § 1-3.807-3.

(c) Cost analysis. (1) Cost analysis, as distinguished from price analysis, is the process of: (i) obtaining a breakdown of cost from prospective contractors or subcontractors; (ii) verifying cost data; (iii) evaluating specific elements of cost; and (iv) projecting cost data to determine the effect on prices of such factors as:

(A) The necessity for certain costs;

(B) The reasonableness of amounts estimated for the necessary costs;

(C) Allowances for contingencies;

(D) The basis used for allocation of overhead costs; and

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

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

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

(ii) The contractor's or offerer'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.

(3) Forecasting future trends in costs from historical cost experience is of primary importance in pricing. In periods of either rising or declining costs, an adequate cost analysis must include some evaluation of the trends. 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.

§ 1—3.807—3 Cost and pricing data.

(a) General. When there is adequate price competition, cost data should not be requested regardless of the dollar amount involved. However, In the absence of adequate price competition or some other basis for assuring reasonableness of price, the negotiating team must analyze the contractors' (or prospective contractors') proposals and must be in possession of accurate, complete, and current cost or pricing data before decisions are made on contract prices. Accordingly, the contractor should be required to furnish such data promptly as it becomes available throughout the negotiation process. Where cost or pricing data has been furnished, it shall be considered in making decisions on contract prices. As a general rule, cost 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." Where, however,' despite the v illingness of a number of commercial •urchasers to buy an item at such a catalog or market price, the purchaser (e.g., 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 data may be requested if necessary to establish a reasonable price: Provided, That such finding is approved at a level above the contracting officer. In addition, cost 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 pricing cannot reasonably be accomplished by comparing the two. 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 § 1-3.807l(b)(2), any requirement for cost data should be limited to that pertaining to the differences between the items if this limitation is consistent with assuring reasonableness of the price.

(b) Requirements for cost or pricing data. (1) The contracting officer shall, except as provided in § 1-3.807-3(b) (2), require the prospective contractor or contractor, as the case may be, to submit in writing cost or pricing data and to certify, by 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 be submitted were accurate, complete, and current, prior to:

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

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

(iii) The pricing of any contract modification expected to exceed $100.000 in amount to any formally advertised contract, or to any negotiated contract (whether or not cost or pricing data were required in connection with the initial pricing of the contract): Provided, That in the case of a modification to a formally advertised contract, the clause in S 1-3.814-1 (b) was included in the contract at the time of award (see § 1-3.807-3 (d)).

(2) The requirements of § 1-3.807-3 (b) (1) need not be applied where, in the case of (i) thereof, construction contracts or basic research contracts with educational institutions are involved; where, in the case of (ii) and'(ili) 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 § l-3.302(e)).

(3) 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.

(4) Any contractor who has been required to submit and certify cost or pricing data in accordance with this § 1-3.807-3(b) 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.

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