FAR 15.404-3—Subcontract pricing considerations.
Plain-English Summary
FAR 15.404-3 explains how subcontract pricing must be evaluated when the Government is determining whether a prime contract price is fair and reasonable. It covers the contracting officer’s duty to consider subcontracting costs, the effect of a contractor’s approved purchasing system, and whether the contractor has already performed cost or price analysis or negotiated subcontract prices before prime contract negotiations. It also sets out the prime contractor’s and subcontractor’s obligations to analyze proposed subcontract prices, document those analyses in the price proposal, and, when required, provide subcontractor certified cost or pricing data to the Government. The section further requires contractors that must submit certified cost or pricing data to obtain and analyze such data before awarding certain subcontracts, purchase orders, or modifications, and it establishes when subcontractor data must be passed through to the Government, including threshold-based rules, format requirements, currency requirements, and the rule for multiple prospective subcontractors. In practice, this section is meant to prevent inflated subcontract costs from flowing into the prime contract price and to give the contracting officer enough visibility to judge whether subcontract pricing is reasonable.
Key Rules
CO remains price decision-maker
The contracting officer is responsible for determining a fair and reasonable prime contract price, including subcontracting costs. Even if the contractor has done its own analysis, the CO must still independently review the submission and any certified cost or pricing data.
Consider subcontract pricing controls
In evaluating reasonableness, the CO should consider whether the contractor or subcontractor has an approved purchasing system, has analyzed proposed subcontract prices, or has already negotiated those prices. These factors can support the CO’s reasonableness determination, but they do not replace it.
Prime and subcontractor analysis duty
The prime contractor or subcontractor must perform appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices and must include the results in the price proposal. If certified cost or pricing data must be passed through, that data must also be submitted as part of the contractor’s own certified cost or pricing data.
Pre-award subcontract data review
Any contractor or subcontractor required to submit certified cost or pricing data must obtain and analyze certified cost or pricing data before awarding a subcontract, purchase order, or modification expected to exceed the threshold, unless an exception in FAR 15.403-1(b) applies. This pushes pricing scrutiny down into the subcontracting chain.
Pass-through submission thresholds
The contractor must submit, or cause submission of, subcontractor certified cost or pricing data to the Government for subcontracts that are the lower of $20 million or more, or both above the applicable certified cost or pricing data threshold and above 10 percent of the prime contractor’s proposed price, unless the CO believes submission is unnecessary.
CO may require more data
The contracting officer may require submission of subcontractor certified cost or pricing data below the threshold in paragraph (c)(1), as well as other than certified cost or pricing data, when needed to adequately price the prime contract. This gives the CO discretion to request additional support when the subcontract cost is material or uncertain.
Use required data format
Subcontractor certified cost or pricing data must be submitted in the format prescribed in FAR 15.408 solicitation provisions and contract clauses, or in an alternate format specified in the solicitation. The format requirement helps ensure the data is usable and consistent.
Data must be current and complete
Subcontractor certified cost or pricing data must be current, accurate, and complete as of the date of price agreement, or an earlier agreed date stated on the contractor’s Certificate of Current Cost or Pricing Data. The contractor must update subcontractor data as appropriate during source selection and negotiations.
Only one prospective subcontractor needed
If more than one prospective subcontractor is competing for the same work, the contractor only has to submit certified cost or pricing data for the prospective subcontractor most likely to receive the award. This limits unnecessary Government review while still capturing the likely awardee’s pricing basis.
Responsibilities
Contracting Officer
Determine whether the prime contract price is fair and reasonable, including subcontracting costs; consider the contractor’s purchasing system and subcontract pricing analyses; independently analyze the contractor’s submission and any subcontractor certified cost or pricing data; and require additional subcontractor data or other pricing support when needed to adequately price the prime contract.
Prime Contractor
Perform appropriate cost or price analyses of proposed subcontract prices; document those analyses in the price proposal; obtain and analyze certified cost or pricing data before awarding covered subcontracts, purchase orders, or modifications; submit required subcontractor certified cost or pricing data to the Government; and update subcontractor data during source selection and negotiations as needed.
Subcontractor
When required, provide certified cost or pricing data to the prime contractor or directly to the Government as applicable; support the reasonableness of proposed subcontract prices through cost or price analysis; and ensure its data is current, accurate, and complete as of the applicable date.
Agency/Government
Use the subcontract pricing information and any required certified cost or pricing data to support the overall price reasonableness determination and, where appropriate, request additional data or alternate formats through the solicitation or contract clauses.
Practical Implications
This section is a reminder that subcontract costs are not automatically accepted just because they are embedded in the prime’s proposal; the CO still has to test them for reasonableness.
Contractors need a real subcontract pricing file, not just a summary number. Missing analysis, weak documentation, or failure to update data during negotiations can create audit findings and delay award.
Approved purchasing systems help, but they do not eliminate the need for analysis or Government review. A strong purchasing system may reduce scrutiny, but it is not a substitute for evidence.
The threshold rules are easy to misapply. Teams should check both the dollar threshold and the 10 percent test, and also remember the CO can still ask for data below those levels.
When multiple subcontractors are competing, only the likely awardee’s certified cost or pricing data must be submitted, but the contractor still must analyze the alternatives enough to justify the selection and price reasonableness.
Official Regulatory Text
(a) The contracting officer is responsible for the determination of a fair and reasonable price for the prime contract, including subcontracting costs. The contracting officer should consider whether a contractor or subcontractor has an approved purchasing system, has performed cost or price analysis of proposed subcontractor prices, or has negotiated the subcontract prices before negotiation of the prime contract, in determining the reasonableness of the prime contract price. This does not relieve the contracting officer from the responsibility to analyze the contractor’s submission, including subcontractor’s certified cost or pricing data. (b) The prime contractor or subcontractor shall- (1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices; (2) Include the results of these analyses in the price proposal; and (3) When required by paragraph (c) of this subsection, submit subcontractor certified cost or pricing data to the Government as part of its own certified cost or pricing data. (c) Any contractor or subcontractor that is required to submit certified cost or pricing data also shall obtain and analyze certified cost or pricing data before awarding any subcontract, purchase order, or modification expected to exceed the certified cost or pricing data threshold, unless an exception in 15.403-1 (b) applies to that action. (1) The contractor shall submit, or cause to be submitted by the subcontractor(s), certified cost or pricing data to the Government for subcontracts that are the lower of either- (i) $20 million or more; or (ii) Both more than the pertinent certified cost or pricing data threshold and more than 10 percent of the prime contractor’s proposed price, unless the contracting officer believes such submission is unnecessary. (2) The contracting officer should require the contractor or subcontractor to submit to the Government (or cause submission of) subcontractor certified cost or pricing data below the thresholds in paragraph (c)(1) of this subsection and data other than certified cost or pricing data that the contracting officer considers necessary for adequately pricing the prime contract. (3) Subcontractor certified cost or pricing data shall be submitted in the format provided in 15.408 Solicitation provisions and contract clauses. of 15.408 or the alternate format specified in the solicitation. (4) Subcontractor certified cost or pricing data shall be current, accurate, and complete as of the date of price agreement, or, if applicable, an earlier date agreed upon by the parties and specified on the contractor’s Certificate of Current Cost or Pricing Data. The contractor shall update subcontractor’s data, as appropriate, during source selection and negotiations. (5) If there is more than one prospective subcontractor for any given work, the contractor need only submit to the Government certified cost or pricing data for the prospective subcontractor most likely to receive the award.