FAR 15.4—Subpart 15.4

Scope of subpart.

FAR 15.400 is a scope statement that tells readers what Subpart 15.4 covers: the cost and price negotiation policies and procedures used to price negotiated prime contracts, subcontracts, and contract modifications. It also makes clear that these pricing rules apply not only to new negotiated awards, but also to modifications of existing contracts, including modifications to contracts originally awarded by sealed bidding. In practice, this section is important because it defines the boundary of the pricing rules that contracting officers and contractors must follow when establishing or revising contract prices. It signals that the subpart is about negotiation-based pricing methods and procedures, not sealed-bid award procedures themselves, while still reaching later modifications to sealed-bid contracts. For acquisition professionals, the section is a roadmap: if the action involves negotiated pricing or a price change through modification, this subpart is the governing framework for how the price is developed and negotiated.

Definitions.

FAR 15.401 provides two important definitions that apply throughout Subpart 15.4, which governs contract pricing. First, it defines "price" to mean cost plus any fee or profit applicable to the contract type, making clear that in this subpart the term is broader than just the amount stated on a contract line item and may include the contractor’s allowable cost plus negotiated profit or fee. Second, it expands the meaning of "subcontract" for purposes of this subpart to include transfers of commercial products or commercial services between divisions, subsidiaries, or affiliates of a contractor or subcontractor, except where the term is used in FAR 15.407-2. This matters because pricing rules, cost analysis, and related disclosure or evaluation requirements can turn on whether a transaction is treated as a subcontract and how price is understood. In practice, the definition helps contracting officers and contractors apply the right pricing standards to intercompany transactions and avoid misclassifying affiliate transfers as something outside subcontract pricing rules. It also signals that the FAR may treat internal corporate transfers as subcontract activity when evaluating price reasonableness, cost buildup, and related pricing issues.

Pricing policy.

FAR 15.402 sets the core pricing policy for negotiated procurements: contracting officers must buy supplies and services from responsible sources at fair and reasonable prices. It explains how the contracting officer establishes price reasonableness, including when certified cost or pricing data are required under FAR 15.403-4 and when only data other than certified cost or pricing data may be used. It also sets the preferred order for obtaining pricing information, starting with no additional offeror data when adequate price competition exists, then moving to market and sales data, and only as needed to cost data. The section emphasizes that the Government should request only the type and quantity of data necessary, using price analysis, cost analysis, and cost realism analysis as appropriate, and requiring more data only if needed to support a fair and reasonable price determination. It further requires that each contract be priced separately and independently, without using losses or profits from other contracts or proposed price reductions elsewhere as evaluation factors. Finally, it prohibits including a contingency amount in the contract price when the contract already provides a price adjustment for that contingency, preventing double counting and unsupported pricing cushions.

Obtaining certified cost or pricing data.

Proposal analysis.

Price negotiation.

FAR 15.405 explains how contracting officers should conduct price negotiation and what the Government is trying to achieve in that process. It covers the purpose of cost or price analysis, the contracting officer’s duty to use judgment in reaching a fair and reasonable price, the role of audit and specialist advice, the need to consider contract type, cost, and profit or fee together, and the requirement to avoid agreeing on profit or fee before resolving cost and contract type. It also addresses what to do when the contractor will not accept a reasonable price or profit/fee and the contracting officer has exhausted authorized actions, including considering an alternative source and elevating the matter above the contracting officer. In practice, this section makes clear that price negotiation is not a mechanical exercise or a line-by-line dispute over every cost element; it is a judgment-based process focused on the total negotiated result. It also emphasizes documentation, especially when the contracting officer departs from significant audit or specialist recommendations or must escalate the action. For contractors, this means the Government may accept some elements and reject others, and the final deal will be judged on overall fairness and reasonableness rather than perfect alignment on every point.

Documentation.

Special cost or pricing areas.

Solicitation provisions and contract clauses.

FAR 15.408 tells contracting officers which solicitation provisions and contract clauses must be included when negotiating federal contracts, based on the type of pricing information, contract structure, and subject matter involved. It covers the make-or-buy program clause and its alternates; the defective certified cost or pricing data clauses for initial awards and for modifications; the subcontractor certified cost or pricing data clauses and their pre-July 1, 2018 replacement alternates; the integrity of unit prices clause and when its alternate applies; pension adjustments and asset reversion; facilities capital cost of money and the waiver clause; postretirement benefits other than pensions; notification of ownership changes; and the provision governing requirements for certified cost or pricing data and data other than certified cost or pricing data, including alternate formats and exception requests. In practice, this section is the roadmap for building a compliant solicitation package and resulting contract when cost or pricing data may be required or when specific cost principles apply. It matters because missing the right clause or provision can undermine price analysis, cost recovery, subcontract flowdowns, and the Government’s ability to enforce defective pricing remedies. It also helps contractors know what data they may have to submit, what certifications and notices they may owe, and when special pricing rules apply to their proposals or contract changes.