Price AnalysisPage 1

Title: /
Price Analysis / Effective Date:
Rev. Level
Supersedes:
Revalidated:
Next revalidation: / Jan. 5, 2014
0
Jan. 5, 2015
Description of Changes:
  1. Purpose

This document sets forth procedure to guide the AMS Procurement Department in determining when and how to perform a price analysis.

This procedure applies to all procurement transactions.

  1. References

Federal Acquisition Regulation, Subpart 4.803 – Contents of Contract Files

Federal Acquisition Regulation, Subpart 6 – Competition Requirements

Federal Acquisition Regulation, Subpart 6.3 – Other than Full and Open Competition

Federal Acquisition Regulations Subpart 13.106-3 – Award and Documentation

Federal Acquisition Regulation Subpart 15.400 – Contract Pricing

Federal Acquisition Regulations Subpart 15.403 – Obtaining Cost or Pricing Data

Federal Acquisition Regulation, Subpart 15.403-5, Instructions for Submission of Cost or Pricing Data or Information Other Than Cost or Pricing Data

Federal Acquisition Regulation, Subpart 15.404-1 – Proposal Analysis Techniques

Federal Acquisition Regulation, Subpart 15.405 – Price Negotiation

  1. General

It is AMS’s standard that the Procurement Department procures products, goods and services from reliable and responsible sources at fair and reasonable prices.

  1. Procedure

Price Analysis

A price analysis is performed to examine and evaluate a proposed price without evaluating its separate cost elements or proposed profit. When cost or pricing data are required, a price analysis shall be performed inconjunction with the cost analysis to verify that the overall price offered is determined to be fair and reasonable.

All purchase orders, subcontract agreements, and other AMS procurement agreements shall contain a documented price analysis establishing whether the proposed prices are determined to be fair and reasonable.

A reasonable price is a price that a prudent and competent Procurement Team Member would be willing to pay given available data on (1) market conditions, (2) alternatives for meeting the requirement, (3) the evaluated price of each alternative, and (4) technical evaluation factors (in "tradeoff" competitions). A fair price is one that is fair to the buyer, fair to the seller, and reasonable under current market conditions.

Performing a price analysis based on competition is the preferred method to determine fair and reasonableness for acquisitions that exceed the micro-purchase threshold.

Other methods may include, but are not limited to:

 Comparison of current and past prices

 Catalogs and price lists

 Published market prices

 Prices charged to commercial customers

 Discounts

 Rebates

 Parametric, e.g., cost per pound, yard, case, box, unit, etc.

 Comparison of proposed prices with independent internal estimates

 Comparison of proposed prices obtained through market research

 Graphical Analysis (Trend Analysis)

 Escalation

 Cost Estimating Relationships

A price analysis may involve a number of comparisons. The comparison process is described using five steps:

 Select prices for comparison:

- Competitive prices

- Commercial prices

- Historical prices

- Price estimates based on rough yardsticks

- Independent Company Estimates

 Identify factors that affect comparability

 Determine the potential impact of these factors on prices selected for comparison

 Adjust prices selected for comparison

 Compare adjusted prices to the offer in line for award

Price Analysis – Documentation

The analysis should include the following components:

 Background/situation

 Analysis

 Explanation and discuss analysis methodology

 Basis of award

 Conclusion

 Procurement Team Member signature and date

 Attachments (when required)

When performing a price analysis, the Procurement Team Member should consider the most likely value of the total procurement including priced options. Indefinite Delivery/ Indefinite Quantity (IDIQ) contracts should be evaluated at the most likely order quantity. However, the maximum value must be considered when assessing whether cost or pricing data is required.

The Procurement Team Member should also evaluate the offers for unbalanced pricing. Unbalanced pricing exists when the overall total price is acceptable but the price for certain contract line items appears to be over or understated. Unbalanced pricing creates risk for AMS if the mix of line item quantities or options ordered is different from those assumed in the award evaluation.

Type of Analysis

In micro-purchases (generally purchases under $3,000) the Procurement Team Members might solicit only one quote, if the Procurement Team Member can determine that the quoted price is reasonable. Evidence of price reasonableness might include previous prices paid for same or similar items purchased competitively and/or knowledge of the supply or service gained from published price catalogs, newspapers, and other sources of market information. If the Procurement Team Member cannot determine that the quoted price is fair and reasonable, obtaining additional quotes will be necessary.

Competitive Prices

Adequate price competition exists when two or more responsible offeror’s, competing independently; submit priced offers that satisfy the expressed requirement.

When comparing competitive offers, the Procurement Team Member shall not use or consider:

 Offeror’s that are determined to be irresponsible

 Offeror quotes that are non-responsive

 Offeror prices that are technically outside the competitive range

Comparability of Proposed Prices

Comparison of previously proposed subcontract prices and previous Government and commercial contracts/subcontracts with current proposed prices for the same or similar end items or services, if both the validity of the comparison and the reasonableness of the previous price(s) can be established.

Factors that affect comparability include, but not limited to:

 Market conditions

 Quantity or size

 Geographic location

 Purchasing power of the dollar

 Extent of competition

 Technology or tooling issues

 AMS/customer unique requirements

After the factors that affect comparability are identified, the Procurement Team Member should identify factors that may affect the comparability by asking the following:

What factors affect the specific comparison?

How do these factors affect the comparison?

Does this comparison, even with its limitations, contribute to the price analysis?

Historical Prices

Historical prices are prior prices paid by AMS for the same and similar end items.

Important scenarios to think about if the Procurement Team Member considers using historical pricing in the analysis are whether the product has been purchased before. What was the historical price and can it be obtained to use in the analysis; and was that historical price fair and reasonable (make sure the circumstances are the same or similar; i.e., the previous acquisition was for a longer time period and for a higher number whereby the price might be lower compared to the acquisition at hand). It is recommended that the historical pricing does not exceed 12 months past the anticipated date of award. Whenever price history is used, the Procurement Team Member shall perform and document an analysis of the price history to demonstrate that a fair and reasonable price was paid. If the analysis of the price history indicates that it was not fair and reasonable, the historical prices cannot be used and further analyses must be conducted.

Commercial Prices

Commercial prices are prices being paid by the general public for products, goods, and services. Although circumstances may be different, data on commercial sales can provide valuable information for use in contract pricing. Commercial pricing information can be classified into the following categories:

 Catalog prices

 Market prices

 Other commercial item prices

Catalog prices

Catalog prices are prices taken from a catalog, price list, schedule, or other verifiable and established record that is regularly maintained by a manufacturer or vendor and is published or otherwise available for customer inspection.

Market prices

Market Prices are prices established in the course of ordinary and usual trade between buyers and sellers free to bargain that can be substantiated from sources independent of the offeror.

Other commercial item prices

Other commercial item prices are those prices established using a means other than those previously listed. One example is that of an offeror providing information on the prices charged commercial customers over a period of time. This would provide a good record of the offeror’s commercial pricing practices.

At a minimum, the Procurement Team Member must use a price analysis to determine whether the price is fair and reasonable whenever AMS acquires a commercial item (See FAR 15.404-1(b)). The fact that a price is included in a catalog does not, in and of itself, make it fair and reasonable. If the Procurement Team Member cannot determine whether an offered price is fair and reasonable, even after obtaining additional information from sources other than the offeror, the Procurement Team Member must require the offeror to submit information other than cost or pricing data to support further analysis (See FAR 15.404-1).

Whenever catalog pricing is used as a basis of documenting a price analysis, the Procurement Team Member shall perform and document an analysis of the catalog prices to demonstrate that they are market-based, fair and reasonable. If the analysis of the catalog prices indicates that it was not fair and reasonable, further analyses must be conducted.

Pricing Yardsticks

Pricing yardsticks are also known as Cost Estimating Relationships (CER). They are formulas to estimate prices based on the relationship of past prices with one or more product’s physical or performance characteristics (i.e., dollars per pound, dollars per horsepower, or dollars per square foot).

Important items to think about when considering a yardstick for price analysis are whether the yardstick has been widely accepted in the marketplace (do both buyers and sellers agree on the validity and reasonableness of the values obtained by a particular yardstick), whether the yardstick has been properly developed (the developer of the yardstick should be able to produce data and calculations used in developing their estimate), and the accuracy of the yardstick (some yardsticks provide rough estimates and not precise prices).

Independent Government/AMS Estimates

The most common estimate is the AMS estimate of what it would cost if AMS performed the labor service.

AMS Technical Staff familiar with the labor qualifications and the SOW should perform these estimates independently.

When analyzing the reliability and validity of an independent estimate, the Procurement Team Member should document answers to the following questions:

 How was the estimate made?

 What assumptions were made?

 What information and tools were used?

 Where was the information obtained?

 How did previous estimates compare with prices paid?