FAR 15.401—Definitions.
Plain-English Summary
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.
Key Rules
Price Includes Cost Plus Fee
For purposes of this subpart, "price" is not limited to the stated contract amount; it means cost plus any fee or profit applicable to the contract type. This definition is used when applying pricing policies, cost analysis, and related negotiation concepts under Subpart 15.4.
Expanded Subcontract Definition
A "subcontract" includes transfers of commercial products or commercial services between divisions, subsidiaries, or affiliates of a contractor or subcontractor. This prevents parties from avoiding subcontract pricing rules by routing work through related corporate entities.
Limited Exception for 15.407-2
The expanded subcontract definition does not apply when the term "subcontract" is used in FAR 15.407-2. Users must check that specific section before assuming the broader definition applies.
Applies Only In This Subpart
These definitions are expressly limited to "as used in this subpart," meaning they control interpretation within Subpart 15.4 and do not automatically govern other FAR parts or clauses unless incorporated by reference or otherwise applicable.
Responsibilities
Contracting Officer
Apply the Subpart 15.4 definitions when evaluating proposed prices, cost elements, and subcontract-related transactions. Verify whether an affiliate transfer must be treated as a subcontract for pricing purposes and use the correct definition when working under FAR 15.407-2.
Contractor
Identify intercompany transfers of commercial products or services as subcontracts when they fall within this definition, and present pricing information accordingly. Ensure pricing proposals and supporting data reflect cost plus fee or profit where relevant under this subpart.
Subcontractor
Recognize that transfers involving divisions, subsidiaries, or affiliates may be treated as subcontracts for pricing purposes and provide accurate pricing support when required. Coordinate with prime contractors on the proper characterization of related-entity transactions.
Agency
Train acquisition personnel on the special meanings of "price" and "subcontract" in Subpart 15.4 so pricing reviews are consistent. Ensure internal guidance and review processes account for affiliate transfers and the exception tied to FAR 15.407-2.
Practical Implications
Contractors cannot assume that an internal transfer between related companies is outside subcontract pricing scrutiny; it may be treated as a subcontract for this subpart.
When negotiating or analyzing price, remember that FAR uses "price" to include cost plus fee or profit, so cost realism and profit/fee treatment may both matter.
The exception for FAR 15.407-2 is easy to miss; always confirm whether that section uses "subcontract" differently before applying this definition.
Misclassifying affiliate transfers can lead to incomplete pricing support, flawed cost analysis, or disputes over whether subcontract-related requirements apply.
Contracting officers should look beyond corporate structure and examine the actual flow of commercial products or services between related entities when assessing pricing issues.
Official Regulatory Text
As used in this subpart- Price means cost plus any fee or profit applicable to the contract type. Subcontract (except as used in 15.407-2 ) also includes a transfer of commercial products or commercial services between divisions, subsidiaries, or affiliates of a contractor or a subcontractor ( 10 U.S.C. 3701(2) and 41 U.S.C. 3501(a)(3) ).