FAR 19.807—Estimating fair market price.
Plain-English Summary
FAR 19.807 explains how the contracting officer must estimate the fair market price for work to be performed by an 8(a) contractor. It covers the basic duty to make a fair market price determination, the methods to use for most acquisitions, and the special approach for repeat purchases. For non-repeat buys, the rule directs the contracting officer to use cost or price analysis and to consider commercial prices for similar products or services, in-house government cost estimates, data submitted by SBA or the 8(a) contractor, and information from other government agencies. For repeat purchases, it adds a more specific comparison method based on recent award prices for the same items or work, with adjustments for differences in quantities, conditions, terms, performance times, specifications, transportation, packaging, and other relevant circumstances, and it allows use of price indices and commercial price comparisons as guides. In practice, this section is important because the fair market price determination is a key safeguard in the 8(a) program: it helps ensure the government pays a reasonable price, supports fair negotiations, and creates a documented basis for award decisions.
Key Rules
CO must estimate fair market price
The contracting officer has the affirmative duty to estimate the fair market price of the work to be performed by the 8(a) contractor. This is not optional and must be done before the price is accepted or the award is made.
Use cost or price analysis
For acquisitions not covered by the repeat-purchase rule, the contracting officer must rely on cost or price analysis. The estimate should be grounded in a reasoned comparison of available pricing and cost information, not guesswork.
Consider multiple data sources
The contracting officer must consider commercial prices for similar products or services, in-house government cost estimates, data submitted by SBA or the 8(a) contractor, and data from other government agencies. The rule expects a broad information base to support the estimate.
Repeat purchases use recent awards
For repeat purchases, the contracting officer should look first to recent award prices for the same items or work, but only if the quantities, conditions, terms, and performance times are comparable. Prior prices are useful only when the underlying circumstances are similar enough to make the comparison meaningful.
Adjust for differences
If the prior award is not fully comparable, the estimated price should be adjusted for differences in specifications, plans, transportation, packaging and packing, and other relevant circumstances. The goal is to normalize the comparison so the estimate reflects the actual acquisition.
Use indices and commercial comparisons as guides
Price indices may be used to gauge changes in labor and material costs, and commercial prices for similar items may also be used. These tools are supporting references, not substitutes for a thoughtful price analysis.
Responsibilities
Contracting Officer
Estimate the fair market price for the 8(a) work, perform the required cost or price analysis, review all relevant pricing and cost data, compare recent awards when the purchase is a repeat buy, make appropriate adjustments for differences, and document the basis for the estimate.
SBA
Provide data to support the fair market price determination when available and relevant. SBA may supply information that helps the contracting officer assess whether the proposed price is fair and reasonable.
8(a) Contractor
Submit pricing, cost, or other supporting data when requested or when needed to support the fair market price review. The contractor may also provide information that helps explain its proposed price or distinguish the current requirement from prior awards.
Other Government Agencies
Provide relevant data when available to assist the contracting officer in estimating fair market price, especially where those agencies have comparable procurement history or market information.
Practical Implications
This section is a documentation-heavy pricing rule: the contracting officer should be able to show exactly what information was considered and why the final estimate is reasonable.
Repeat purchases are often the easiest place to make mistakes; a prior price cannot be used mechanically without checking whether quantities, terms, timing, and specifications are truly comparable.
Adjustments matter. Differences in packaging, transportation, or performance period can materially change the price, so failing to normalize comparisons can distort the estimate.
Commercial market data can be helpful, but it should be used carefully. Similar is not the same, and the contracting officer should explain why the comparison is valid.
For contractors, this rule means proposed prices may be tested against prior awards, market data, and government estimates, so supporting pricing narratives and cost explanations can be important in 8(a) negotiations.
Official Regulatory Text
(a) The contracting officer shall estimate the fair market price of the work to be performed by the 8(a) contractor. (b) In estimating the fair market price for an acquisition other than those covered in paragraph (c) of this section, the contracting officer shall use cost or price analysis and consider commercial prices for similar products and services, available in-house cost estimates, data (including certified cost or pricing data) submitted by the SBA or the 8(a) contractor, and data obtained from any other Government agency. (c) In estimating a fair market price for a repeat purchase, the contracting officer shall consider recent award prices for the same items or work if there is comparability in quantities, conditions, terms, and performance times. The estimated price should be adjusted to reflect differences in specifications, plans, transportation costs, packaging and packing costs, and other circumstances. Price indices may be used as guides to determine the changes in labor and material costs. Comparison of commercial prices for similar items may also be used.