FAR 15.404—Proposal analysis.

Proposal analysis techniques.

FAR 15.404-1 explains how contracting officers analyze proposals to determine whether the final agreed-to price is fair and reasonable. It covers the overall objective of proposal analysis, when to use price analysis versus cost analysis, the contracting officer’s responsibility to evaluate price reasonableness, and the ability to seek help from technical or pricing experts. It also addresses protection of internal Government analysis from disclosure, the duty to elevate discrepancies or mistakes found in proposal data, and the role of AFIT/FAI Contract Pricing Reference Guides as nonbinding instructional resources. The section then lays out price analysis in detail, including what it is, when it is required, the need to obtain noncertified pricing data when necessary, and several accepted techniques such as comparison of proposed prices, historical prices, parametric methods, published price lists and market prices, independent Government estimates, market research, and analysis of other-than-certified cost or pricing data. In practice, this section is the core FAR roadmap for deciding whether a proposed price is supportable, what kind of analysis is appropriate for the acquisition, and how to document and defend the pricing decision.

Data to support proposal analysis.

FAR 15.404-2 explains how contracting officers obtain and use data to support proposal analysis when deciding whether a proposed price is fair and reasonable. It covers field pricing assistance, including technical, audit, and special reports; information on pricing practices, sales history, discounts, catalog or price list verification, commerciality determinations, market conditions, and offeror capabilities; and how contracting officers should coordinate early with field experts during the acquisition and negotiation process. It also addresses how field pricing results are reported, how audit assistance is handled for prime contracts and subcontracts, limits on access to books and financial records, protection of proprietary and source selection information, and what to do when proposals or records are deficient or access is denied. In practice, this section is about making sure the government has enough reliable support to evaluate proposed costs and prices without asking for more data than necessary. It also establishes clear lines between contracting officer responsibilities and auditor responsibilities, and it protects the integrity of the review process and the official contract file.

Subcontract pricing considerations.

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.

Profit.

FAR 15.404-4 explains how the Government establishes the profit or fee portion of a prenegotiation objective when price negotiations are based on cost analysis. It covers the purpose of profit in federal contracting, the policy favoring structured profit-analysis methods, when agencies must or may use a structured approach, and the contracting officer’s duties in developing profit or fee objectives. It also addresses how to calculate the objective from the Government’s prenegotiation cost estimate, including required exclusions for contractor-acquired equipment charged directly to the contract and facilities capital cost of money. The section sets statutory ceilings on fee for certain cost-plus-fixed-fee contracts, requires documentation that those ceilings were not exceeded, and prohibits the Government from requiring contractors to justify their profit or fee objective, while allowing voluntary submissions to be considered. It also permits use of the basic contract’s profit or fee rate for small changes or modifications that are essentially the same work. Finally, it begins the list of profit-analysis factors that must be considered in structured approaches and in any profit analysis, including contractor effort and related factors, to ensure profit is tied to performance risk, complexity, and incentive rather than being reduced mechanically.