How do you determine price reasonableness

It is a good idea to obtain a name of another recent purchaser and confirm that this is the price paid. Often, discounts off of the price list are offered.

If this is the case, it should be noted in the written analysis. The item to be purchased should generally be a commercially produced one sold to the general public in substantial quantities. The Federal Government often enters into contracts with various companies as to the prices of items which will be sold to the Government. These are presumed to be fair and reasonable. If a Seller cites a GSA contract price, that is adequate to determine the price fair and reasonable.

The actual price may be lower than the GSA due to discounts, if this is the case, it should be noted in the written analysis. It may be that only one Seller will propose. If this is the case and the item was previously purchased based on competition, this may be acceptable. If such cases, you want to cite the price of prior purchase and note if it was competitive or based on catalog price or other.

An increase in price, with no current catalog or competition, should be about the current rate of inflation. To analyze a cost the following questions must be considered:. Reasonableness of costs for personal services can be measured by conformity with compensation practices of other organizations of the same size, in the same discipline or industry, and in the same geographic area. Price analysis typically occurs when the subcontractor is a commercial entity that makes a profit on the work performed.

Comparison of Competitive Proposals. At least two responsible suppliers submit bids that can satisfy the University's requirements, are independently submitted, are responsive to the solicitation, and are within a competitive price range. A copy of the supplier's price list will generally suffice to substantiate the fairness and reasonableness of the supplier's quotation. Established Market Price. Applies only to commercial items sold in substantial quantities to the general public.

Market price substantiation may be documented by obtaining copies of other customers' orders from the supplier for the same or similar item, along with an explanation of any price differences.

Definition of Sold in Substantial Quantities: If there are sales of more than a nominal quantity based on the norm of the industry segment. Models, samples, prototypes and experimental units are not substantial quantities. Substantial quantities may be established by sales orders, contracts, shipments, invoices, or other such records. Learning how to support this determination not only allows the award to proceed efficiently, but also with economical assurance.

FAR Part 15 identifies two methods for evaluating price: cost analysis and price analysis. Both can help develop a negotiation position that gives each party an opportunity to reach agreement on a fair and reasonable price. Cost analysis is encouraged when certified cost or pricing data are required.

The cost analysis determination is still a subjective judgement call, however. To figure out if the cost elements and fee are fair and reasonable, there are three questions to ask:. Market research can provide the basis for reasonable prices. Do research for your market, region, and on other factors like inflation rates to find the right price for acquiring desired goods or services.

Cost realism analyses can be applied to proposals for cost-reimbursement or competitive fixed-price contracts to determine the probable cost of performance. Comparing the proposed price per square foot for a certain type of building construction against an established commercial standard is an example of this technique.

Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements. The Government may be able to seek discounts from published price lists based on volume buying. Comparison of proposed prices with independent Government cost estimates. A contractor-developed cost estimate may not be used in lieu of a Government cost estimate. Comparison of proposed prices with prices obtained through market research for the same or similar items.

Trade journals, newspapers, and economic indexes can provide useful comparative information. Analysis of pricing information provided by the offeror. Please Provide Your Feedback Below. E-mail Address.