Ch 6 - Compar i ng Pr i ces

6. 0 - Chapt er I nt r oduct i on
6. 1 - Sel ect i ng Pr i ces For Compar i son
o 6. 1. 1 - Ot her Pr oposed Pr i ces
o 6. 1. 2 - Commer ci al Pr i ces
o 6. 1. 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act
Pr i ces
o 6. 1. 4 - Par amet r i c And Rough Yar dst i cks Est i mat es
o 6. 1. 5 - I ndependent Gover nment Est i mat es
6. 2 - I dent i f yi ng Fact or s That Af f ect Compar abi l i t y
6. 3 - Det er mi ni ng The Ef f ect Of I dent i f i ed Fact or s
6. 4 - Adj ust i ng The Pr i ces Sel ect ed For Compar i son
6. 5 - Compar i ng Adj ust ed Pr i ces

6.0 Chapter Introduction
The f i gur e bel ow depi ct s t he pr ocess i nvol ved i n maki ng
pr i ce compar i sons f or pr i ce anal ysi s.


Comparisons in Price Analysis ( FAR 15. 404- 1( b) ( 1) ) . Pr i ce
anal ysi s:
I s t he pr ocess of exami ni ng and eval uat i ng a pr oposed
pr i ce t o det er mi ne i f i t i s f ai r and r easonabl e
wi t hout eval uat i ng i t s separ at e cost el ement s and
pr oposed pr of i t . Pr i ce anal ysi s may, however , be
suppor t ed by anal ysi s of some cost el ement s and/ or
pr of i t .
Al ways i nvol ves some f or mof compar i son wi t h ot her
pr i ces.
Hence, you compar e pr i ces t o det er mi ne whet her t he
pr i ce f r omt he appar ent successf ul of f er i s f ai r and
r easonabl e. The base f or your compar i son shoul d be a pr i ce
t hat you f eel i s a r easonabl e est i mat e of t he pr i ce t hat
you shoul d pay - - t he " shoul d- pay" pr i ce.
Should-Pay Price. The shoul d- pay pr i ce i s t he pr i ce t hat ,
i n your best j udgment , t he Gover nment shoul d r easonabl y
expect t o pay f or t he del i ver abl e based on avai l abl e
i nf or mat i on concer ni ng compet i t i ve of f er s, hi st or i cal
pr i ces, commer ci al pr i ces, pr i ci ng yar dst i cks, and
I ndependent Gover nment Est i mat es.
Bear i n mi nd t hat your shoul d- pay pr i ce i s an est i mat e.
Bei ng an est i mat e, i t i s by def i ni t i on i nexact . I f you have
done a good j ob of pr i ce anal ysi s, your shoul d- pay pr i ce
wi l l pr obabl y be cl ose t o t he mar k. St i l l , don' t be
dogmat i c about your est i mat e - t o t he poi nt of r ej ect i ng
of f er s t hat ar e cl ose t o, but not exact l y at , your shoul d-
pay pr i ce est i mat e.
I f t he appar ent successf ul of f er i s si gni f i cant l y
hi gher or l ower t han your est i mat e:
Det er mi ne why t her e i s a si gni f i cant var i ance bet ween
t he shoul d- pay pr i ce and t hat of f er and t hen
Make t he cr i t i cal pr i ce- r el at ed deci si ons i n awar di ng
cont r act s t hr ough seal ed bi ddi ng or negot i at i ons.
Comparability. Compar abi l i t y i s t he qual i t y or st at e of
bei ng compar abl e. Pr oduct s do not have t o be al i ke t o be
compar ed. Any t wo t hi ngs can be compar ed, but t he
compar i son may show t hat t hey have no char act er i st i cs i n
common. However , i f you ar e at t empt i ng t o eval uat e pr i ce
r easonabl eness, t he compar i son wi l l not be of any val ue i f
t he i t ems ar e unl i ke i n ever y way.
For pr i ce anal ysi s, t he i t ems bei ng compar ed must have
enough si mi l ar char act er i st i cs or qual i t i es t o make t he
compar i son usef ul . The mor e si mi l ar t he i t ems ar e, t he
easi er t he compar i son. I f your exami nat i on di scl oses
si gni f i cant di f f er ences, you may need t o quant i f y t he
ef f ect of t hose di f f er ences ( e. g. , acqui si t i on of di f f er ent
pr oduct s, at di f f er ent t i mes, or i n di f f er ent pl aces) and
make adj ust ment s bef or e you can r each val i d concl usi ons
about pr i ce r easonabl eness. The gr eat er t he di ssi mi l ar i t i es
and t he mor e subj ect i ve your adj ust ment , t he gr eat er t he
possi bi l i t y f or doubt s about your concl usi ons and t he l ess
l i kel y t hat your anal ysi s wi l l be per suasi ve.
Multiple Comparisons. Use t he i nf or mat i on gat her ed dur i ng
your mar ket r esear ch t o make mul t i pl e compar i sons i n
det er mi ni ng pr i ce r easonabl eness and i ncr ease conf i dence i n
your pr i ci ng deci si on.
For example, adequate price competition is normally
considered one of the best bases for price analysis.
However , you can have appar ent compet i t i on and st i l l have
pr i ces t hat ar e unr easonabl y hi gh. How woul d you know? You
must consi der ot her bases f or pr i ce anal ysi s ( e. g. ,
hi st or i cal pr i ces, cat al og pr i ces, or mar ket pr i ces) .
The number of compar i sons t hat you consi der shoul d
depend on t he avai l abi l i t y of i nf or mat i on and t he pr i ci ng
r i sk i nvol ved i n t he acqui si t i on.
I f t he i nf or mat i on i s r eadi l y avai l abl e i n a f or mt hat
can be used f or pr i ce anal ysi s, why not consi der i t ? A
qui ck compar i son wi l l i ncr ease your conf i dence of
pr i ce r easonabl eness.
I f t he pr i ce i s l ar ge or you st i l l have concer ns about
pr i ce r easonabl eness af t er your i ni t i al compar i son, t he
r i sk i nvol ved makes i t par t i cul ar l y i mpor t ant t o consi der
ot her compar i sons.
Comparison Steps. Each di f f er ent compar i son wi l l i nvol ve
di f f er ent i nf or mat i on and some bases wi l l r equi r e
subst ant i al adj ust ment pr i or t o maki ng your anal ysi s.
However , t he compar i son pr ocess i s descr i bed i n f i ve st eps
out l i ned bel ow.
Step Action Questions to Consider
1 Sel ect pr i ces
f or compar i son:
Ot her
pr oposed
pr i ces;
Commer ci al
pr i ces;
Pr evi ousl y-
pr oposed
pr i ces and
cont r act
pr i ces;
Par amet r i c
est i mat es
or r ough
yar dst i ck
est i mat es;
or
I ndependent
Gover nment
Est i mat es
Woul d t hi s compar i son be val i d?
Ar e mor e compar abl e pr i ces
avai l abl e?
2 I dent i f y f act or s
t hat af f ect
compar abi l i t y.

Have I consi der ed al l
pot ent i al l y si gni f i cant f act or s,
i ncl udi ng di f f er ences i n:
Mar ket condi t i ons;
Quant i t y or si ze;
Geogr aphi c l ocat i on;
Pur chasi ng power of t he
dol l ar ;
Ext ent of compet i t i on;
Technol ogy; or
Ter ms and condi t i ons ( e. g. ,
di f f er ences i n f eat ur es or
capabi l i t i es, del i ver y
l ead- t i mes, one- t i me cost s,
et c. ) .
3 Det er mi ne t he
pot ent i al i mpact
of t hese f act or s
on pr i ces
sel ect ed f or
How subst ant i al i s t he i mpact ?
I n vi ew of t hese f act or s and
t hei r i mpact , wi l l t he
cont empl at ed compar i son have any
cr edi bi l i t y?
compar i son.
4 Adj ust pr i ces
sel ect ed f or
compar i son.
Have I account ed f or al l f act or s
t hat can be dol l ar i zed?
What t echni ques shoul d be
appl i ed i n maki ng t he
adj ust ment ?
How much r el i ance can I pl ace on
t he r esul t i ng est i mat e?
5 Compar e adj ust ed
pr i ces t o t he
of f er i n l i ne
f or awar d.
How much wei ght shoul d I pl ace
on each compar i son?
I f adj ust ed pr i ces di f f er
subst ant i al l y f r omt he appar ent
successf ul of f er , what pr i ce
shoul d t he Gover nment r easonabl y
expect t o pay?

6.1 Selecting Prices For Comparison
Thi s sect i on i dent i f i es and def i nes f i ve pot ent i al
bases f or pr i ce anal ysi s. Af t er def i ni ng each base, speci al
consi der at i ons f or usi ng each base ar e out l i ned.
6. 1. 1 - Ot her Pr oposed Pr i ces
6. 1. 2 - Commer ci al Pr i ces
6. 1. 3 - Pr evi ousl y- Pr oposed Pr i ces And Cont r act Pr i ces
6. 1. 4 - Par amet r i c And Rough Yar dst i cks Est i mat es
6. 1. 5 - I ndependent Gover nment Est i mat es
Potential Bases ( FAR 15. 404- 1( b) ) . You may sel ect any of
t he f ol l owi ng bases f or pr i ce anal ysi s:
Ot her pr oposed pr i ces r ecei ved i n r esponse t o t he
sol i ci t at i on;
Commer ci al pr i ces i ncl udi ng compet i t i ve publ i shed
pr i ce l i st s, publ i shed commodi t y mar ket pr i ces,
si mi l ar i ndexes, and di scount or r ebat e ar r angement s;
Pr evi ousl y- pr oposed pr i ces and cont r act pr i ces f or t he
same or si mi l ar end i t ems, i f you can est abl i sh bot h
t he val i di t y of t he compar i son and t he r easonabl eness
of t he pr oposed pr i ce;
Par amet r i c est i mat es or est i mat es devel oped usi ng
r ough yar dst i cks; or
I ndependent Gover nment Est i mat es.
One of t he bases f or pr i ce anal ysi s i dent i f i ed i n t he
FAR i s " pr i ces f or t he same or si mi l ar i t ems obt ai ned
t hr ough mar ket r esear ch. " Because mar ket r esear ch can span
commer ci al pr i ces, pr evi ousl y- pr oposed pr i ces, cont r act
pr i ces, par amet r i c or r ough yar dst i ck est i mat es, and
I ndependent Gover nment Est i mat es, t hi s base f or pr i ce
anal ysi s wi l l not be consi der ed separ at el y.
Types of compar i sons used i n pr i ce anal ysi s t ypi cal l y
var y wi t h t he est i mat ed dol l ar val ue of t he cont r act .
Micro-purchases. ( FAR 13. 2) You may sol i ci t onl y one
quot e, i f you consi der t he quot ed pr i ce i s r easonabl e. Your
deci si on on pr i ce r easonabl eness shoul d be based on
i nf or mat i on such as:
Pr evi ous pr i ces pai d f or t he same or si mi l ar i t ems
pur chased compet i t i vel y; or
Knowl edge of t he suppl y or ser vi ce gai ned f r om
publ i shed pr i ces i n cat al ogs, newspaper s, and ot her
sour ces of mar ket i nf or mat i on.
I f you suspect t hat t he quot ed pr i ce i s not r easonabl e or
you do not have compar abl e pr i ci ng i nf or mat i on r eadi l y
avai l abl e, t ake mor e aggr essi ve act i on t o col l ect t he
i nf or mat i on necessar y t o det er mi ne pr i ce r easonabl eness.
Nor mal l y, you shoul d sol i ci t addi t i onal quot es by phone or
f ax.
Other Simplified Acquisitions ( FAR 13. 1) . Whenever
possi bl e, base pr i ce anal ysi s on compet i t i ve quot es.
Pr omot e compet i t i on t o t he maxi mumext ent pr act i cabl e.
Synopsi ze any cont r act act i on t hat exceeds $25, 000 i n
t he Commer ce Busi ness Dai l y unl ess an exempt i on
appl i es.
I f t he cont r act act i on does not exceed $25, 000 and you
do not use FACNET or anot her met hod pr ovi di ng access
t o t he not i ce of pr oposed cont r act act i on t hr ough t he
si ngl e Gover nment - wi de poi nt of ent r y, you can
nor mal l y obt ai n t he maxi mumpr act i cabl e compet i t i on
wi t hout sol i ci t i ng sour ces f r omout si de t he l ocal
t r adi ng ar ea. You shoul d obt ai n compet i t i on f r omat
l east t hr ee sour ces, i f t hr ee sour ces ar e r easonabl y
avai l abl e. Consi der t he f ol l owi ng f act or s when
det er mi ni ng t he number of sour ces t o sol i ci t :
o The nat ur e of t he ar t i cl e or ser vi ce t o be
pur chased and whet her i t i s hi ghl y compet i t i ve
and r eadi l y avai l abl e i n sever al makes or br ands,
or i s r el at i vel y noncompet i t i ve;
o The avai l abi l i t y of an el ect r oni c commer ce met hod
t hat empl oys wi despr ead publ i c not i ce of t he
r equi r ement ;
o The ur gency of t he pr oposed pur chase;
o The dol l ar val ue of t he pr oposed pur chase; and
o Past exper i ence concer ni ng speci f i c deal er s'
pr i ces.
I f you onl y r ecei ve one quot e, consi der t he f ol l owi ng
bases f or pr i ce anal ysi s:
o Pr i ces i dent i f i ed dur i ng mar ket r esear ch;
o Pr i ces f ound r easonabl e f or pr evi ous pur chases;
o Cur r ent pr i ce l i st , cat al og, or adver t i sed
pr i ces;
o Pr i ces f or si mi l ar i t ems i n a r el at ed i ndust r y;
o Pr i ce est i mat es devel oped dur i ng val ue anal ysi s;
o Per sonal knowl edge of i t empr i ces;
o The I ndependent Gover nment Est i mat e; or
o Any ot her r easonabl e base f or pr i ce anal ysi s.
Contracts over the Simplified Acquisition Threshold.
Consi der ever y t ype of compar i son whi ch you bel i eve
pr ovi des a val i d shoul d- pay pr i ce.
For exampl e, i f you have dat a on pr evi ous cont r act
pr i ces and have r eason t o bel i eve t hat t hese dat a
r ef l ect good pr i or deci si ons on pr i ce r easonabl eness,
t hen compar e t he appar ent successf ul of f er t o t hose
pr i ces. I f you have r eason t o bel i eve t hat pr evi ous
cont r act pr i ces wer e not r easonabl e, t hen gi ve l i t t l e
or no wei ght t o t hose pr i ces as you per f or myour pr i ce
anal ysi s. I f you have no pr i ce hi st or y, you must r el y
on ot her compar i son bases f or your pr i ce anal ysi s.

6.1.1 Other Proposed Prices
Proposed Prices ( FAR 15. 404- 1( b) ( 2) ) . Compar i son of a
pr oposed pr i ce wi t h ot her pr oposed pr i ces r ecei ved i n
r esponse t o t he same sol i ci t at i on i s gener al l y consi der ed
one of t he best bases f or pr i ce anal ysi s, because al l
of f er s wer e submi t t ed t o meet t he same r equi r ement dur i ng
t he same t i me per i od.
Using Proposed Prices ( FAR 15. 403- 1( c) ( 1) ) . Any pr oposed
pr i ce used as a base f or pr i ces anal ysi s must meet t he
f ol l owi ng gener al r equi r ement s:
The pr i ce must be submi t t ed by a f i r mcompet i ng
i ndependent l y f or cont r act awar d.
The pr i ce must be par t of an of f er t hat meet s
Gover nment r equi r ement s.
Awar d must be made t o t he of f er or whose pr oposal
r epr esent s t he best val ue t o t he Gover nment .
I f you have mor e t han one compet i t i ve of f er , you coul d
use mor e t han one of f er i n your anal ysi s.
Do not use t he pr i ce f r omany of f er t hat you woul d not
consi der f or cont r act awar d as a basi s f or pr i ce anal ysi s.
Never use an of f er f r oma f i r mt hat you have
det er mi ned i s nonr esponsi bl e.
I n seal ed bi ddi ng, never use a nonr esponsi ve bi d.
I n negot i at i ons, never use a pr i ce f r oma pr oposal t hat
i s t echni cal l y unaccept abl e.
Special Concerns ( CGEN B- 176217, December 14, 1972 and CGEN
B- 189884, Mar ch 29, 1979) .
You shoul d nor mal l y pl ace l ess r el i ance on compar i sons
wi t h ot her pr oposed pr i ces when:
The sol i ci t at i on was made under condi t i ons t hat
unr easonabl y deni ed one or mor e known and qual i f i ed
of f er or s an oppor t uni t y t o compet e.
The appar ent successf ul of f er or has such a deci ded
advant age t hat i t i s pr act i cal l y i mmune f r om
compet i t i on.
Anot her pr i ce compar i son, cost anal ysi s, or a cost
r eal i smanal ysi s i ndi cat es t hat t he appar ent
successf ul of f er may be unr easonabl e ( t oo hi gh or t oo
l ow) .
Gover nment r equi r ement s per mi t of f er or s t o pr opose
wi del y di f f er ent t echni cal appr oaches t o cont r act
per f or mance. For exampl e, a cer ami c mug and a paper
cup may bot h meet a r equi r ement t o hol d 8 ounces of
cof f ee, but t hat does not mean t hat $1. 00 pr i ce f or a
paper cup i s r easonabl e because i t i s l ess t han a $5
pr i ce f or a cer ami c mug. Even i f no ot her of f er or i s
pr oposi ng t o pr ovi de a paper cup, t he key el ement of
your pr i ce anal ysi s shoul d be t o compar e t he paper cup
of f er wi t h pr i ces pai d f or si mi l ar paper cups.
Pr i ce i s not a subst ant i al f act or i n t he eval uat i on of
of f er s f or cont r act awar d. However , t he Compt r ol l er
Gener al ( CGEN) has f ound adequat e pr i ce compet i t i on i n
cases wher e pr i ce was assi gned a wei ght of onl y 20
per cent i n t he awar d deci si on.
Al l of f er or s ar e expect ed r ecei ve cont r act awar ds. I n
such cases, t her e may not be suf f i ci ent compet i t i ve
pr essur e t o f ost er f ai r and r easonabl e pr i ci ng.

6.1.2 Commercial Prices
Definition ( FAR 15. 404- 1( b) ( 2) ) . Commer ci al pr i ces ar e
pr i ces bei ng pai d by t he gener al publ i c f or a pr oduct . The
ci r cumst ances of your pur chase may be di f f er ent f r omt he
commer ci al sal es, but dat a on commer ci al sal es can pr ovi de
val uabl e i nf or mat i on f or use i n cont r act pr i ci ng.
" Hor r or st or i es" about over pr i ci ng of Gover nment
cont r act s seemt o occur ever y f ew year s. Most coul d have
been avoi ded i f cont r act i ng of f i cer s had consi der ed t he
pr i ce t hat t he gener al publ i c woul d be wi l l i ng t o pay f or
t he pr oduct . Cont r act or s mi ght have l ogi cal r easons f or
char gi ng $435 t o pr ovi de a common hammer as par t of a maj or
syst ems cont r act . But , as t he Gover nment ' s agent , coul d you
expl ai n t o t he gener al publ i c why you pai d $435 f or a
hammer t hat anyone coul d buy i n any har dwar e st or e f or l ess
t han $35?
Using Commercial Prices ( FAR 15. 404- 1( b) ( 2) ) . You can
cl assi f y t he sour ces of commer ci al pr i ci ng i nf or mat i on i nt o
t hr ee cat egor i es:
Published price list - - pr i ces t aken f r oma cat al og,
pr i ce l i st , schedul e, or ot her ver i f i abl e and
est abl i shed r ecor d t hat i s r egul ar l y mai nt ai ned by a
manuf act ur er or vendor and i s publ i shed or ot her wi se
avai l abl e f or cust omer i nspect i on. For pr i ci ng
pur poses ( but not cost or pr i ci ng dat a except i on
pur poses) , you can consi der publ i shed pr i ci ng
i nf or mat i on f r omt he f i r msubmi t t i ng t he of f er and/ or
publ i shed pr i ci ng i nf or mat i on f r omot her f i r ms
of f er i ng si mi l ar pr oduct s.
Published market prices - - pr i ces est abl i shed i n t he
cour se of or di nar y and usual t r ade bet ween buyer s and
sel l er s f r ee t o bar gai n t hat can be subst ant i at ed f r om
sour ces i ndependent of t he of f er or . Nor mal l y, mar ket
pr i ci ng i nf or mat i on i s t aken f r omi ndependent mar ket
r epor t s, but a mar ket pr i ce coul d be est abl i shed by
sur veyi ng t he f i r ms i n a par t i cul ar i ndust r y or
mar ket .
Similar indexes - - commer ci al i t empr i ces est abl i shed
usi ng a means ot her t han t hose descr i bed above. For
exampl e, an of f er or mi ght pr ovi de i nf or mat i on on t he
pr i ces char ged commer ci al cust omer s over a per i od of
t i me. Such a r ecor d woul d not qual i f y as publ i shed
pr i ce l i st or mar ket pr i ce, but i t woul d pr ovi de a
good r ecor d of t he f i r m' s commer ci al pr i ci ng
pr act i ces.
Discounts. Commer ci al sal es t ypi cal l y i ncl ude di scount s
f or di f f er ent t ypes of cust omer s. Di scount amount s
t ypi cal l y depend on t he pr oduct and t he mar ket i ng st r at egy
of t he f i r m. Common f act or s af f ect i ng di scount s i ncl ude,
ser vi ces pr ovi ded by t he sel l er ( e. g. , whol esal e and r et ai l
sal es) and t he i mpor t ance of t he sal e ( e. g. , dol l ar s
i nvol ved or t he r el at i onshi p t o ot her sal es) .
Rebates. Rebat es ar e of t en of f er ed t o var i ous cust omer s
based on t he cust omer ' s t ot al pur chases over a speci f i c
per i od of t i me. For exampl e, aut omobi l e manuf act ur er s
t ypi cal l y of f er deal er s r ebat es, based on t ot al sal es. That
i s one r eason why deal er s can adver t i se sal es " at i nvoi ce. "
Deal er pr of i t i s based on t he r ebat e amount .
Contracting Situation Differences. Remember t hat your
cont r act i ng si t uat i on may be di f f er ent t han t he si t uat i on
i n t he commer ci al mar ket . For exampl e, t he of f er or may
pr ovi de ser vi ces t o commer ci al cust omer s t hat ar e not
r equi r ed by t he Gover nment . I f t he Gover nment i s r ecei vi ng
l ess, you shoul d expect t o pay l ess.

6.1.3 Previously-Proposed Prices And Contract Prices
Historical Prices ( FAR 15. 404- 1( b) ( 2) ) . Pr evi ousl y-
pr oposed pr i ces and cont r act pr i ces ar e hi st or i cal pr i ces -
- pr i ces r el at ed t o past pur chasi ng act i vi t y. The pur chase
associ at ed wi t h a par t i cul ar pr i ce may have been made by
your of f i ce or anot her of f i ce wi t h si mi l ar r equi r ement s.
Using Historical Prices. Whenever you consi der usi ng
hi st or i cal pr i ces t o anal yze pr i ce r easonabl eness, ask t he
f ol l owi ng quest i ons:
Has the product been purchased before?
The pur chase may have been made by your of f i ce or by
anot her pur chasi ng of f i ce.
What was the historical price?
You can obt ai n pr i ce i nf or mat i on f r ompur chase f i l es,
comput er dat a f i l es, or manual i nvent or y i t emr ecor ds.
Was the historical price fair and reasonable?
For a hi st or i cal pr i ce t o be usef ul i n det er mi ni ng t he
r easonabl eness of an of f er ed pr i ce, you must know t hat t he
hi st or i cal pr i ce was f ai r and r easonabl e. Be car ef ul ! I t i s
not uncommon t o r evi ew an i t empur chase hi st or y and f i nd
t hat no base ot her t han t he l ast pr i ce pai d has been used
f or year s t o det er mi ne pr i ce r easonabl eness. I n one st udy,
t he ent i r e pr i ci ng hi st or i es f or sever al i t ems wer e
r evi ewed and anal yst s f ound t hat f or ever y acqui si t i on
except t he f i r st , t he det er mi nat i on of pr i ce r easonabl eness
was based on t he l ast pr i ce pai d. Anal yst s al so f ound t hat
t he f i r st acqui si t i on was a mul t i pl e- i t emacqui si t i on and
whi l e t her e was an anal ysi s of t he r easonabl eness of t he
over al l acqui si t i on pr i ce, no one ever exami ned t he
r easonabl eness of i ndi vi dual i t empr i ces. I n ot her wor ds,
f or year s cont r act i ng of f i cer s f ound pr i ces r easonabl e
based on an ar bi t r ar y deci si on made dur i ng t he f i r st
acqui si t i on.
Is the comparison valid?
For t he compar i son t o be val i d, you must be abl e t o
i dent i f y and consi der any i t emor mar ket di f f er ences t hat
mi ght si gni f i cant l y af f ect cont r act pr i ce.

6.1.4 Parametric And Rough Yardsticks Estimates
Cost Estimating Relationships ( FAR 15. 404- 1( b) ( 2) ) . Cost
est i mat i ng r el at i onshi ps ( CERs) ar e used t o devel op
par amet r i c est i mat es or r ough yar dst i ck est i mat es. A CER i s
a f or mul a f or est i mat i ng pr i ces based on t he r el at i onshi p
of past pr i ces wi t h one or mor e pr oduct physi cal or
per f or mance char act er i st i cs ( e. g. , dol l ar s per pound or
dol l ar s per hor sepower ) . Whenever you can r el at e i t empr i ce
wi t h t he val ue of one or mor e physi cal or per f or mance
char act er i st i cs, you can use t he r el at i onshi p t o est i mat e
t he pr i ce of a si mi l ar pr oduct . For exampl e, bui l der s
commonl y est i mat e t he pr i ce of a pl anned bui l di ng by
mul t i pl yi ng t he number of squar e f eet i n t he bui l di ng by an
est i mat ed cost per squar e f oot .
Using Cost Estimating Relationships.
Whenever you consi der usi ng a CER t o det er mi ne pr i ce
r easonabl eness, ask t he f ol l owi ng quest i ons:
Has the CER been widely accepted in the market place?
Det er mi ne whet her bot h buyer s and sel l er s agr ee on t he
val i di t y of a par t i cul ar r el at i onshi p/ yar dst i ck and t he
r easonabl eness of val ues used i n est i mat i ng. Sel l er s may
use a r el at i onshi p/ yar dst i ck t hat pr oduces an est i mat e
hi gher t han t hat nor mal l y accept ed by buyer s.
Does the CER produce reasonable results?
The user of t he r el at i onshi p/ yar dst i ck has t he bur den of
demonst r at i ng t hat t he r el at i onshi p/ yar dst i ck pr oduces
r easonabl e est i mat es. The user shoul d be abl e t o
demonst r at e t he dat a and cal cul at i ons used t o devel op t he
r el at i onshi p/ yar dst i ck.
How accurate is the CER?
Val i dat e t he usi ng known pr oduct dat a and pr i ces. Exami ne
t he accur acy of t he r esul t s. Remember t hat even a pr oper l y
devel oped pr i ci ng r el at i onshi p/ yar dst i ck wi l l not al ways
pr edi ct pr i ce exact l y. Some r el at i onshi p/ yar dst i cks ar e
ver y accur at e ot her s wi l l onl y gi ve you a r ough
appr oxi mat i on of t he pr oper pr i ce. As
r el at i onshi p/ yar dst i ck accur acy decr eases, t he wei ght t hat
you pl ace on t he r el at i onshi p/ yar dst i ck i n your pr i ci ng
deci si on shoul d al so decr ease.

6.1.5 Independent Government Estimates
Independent Government Estimates. As t he name i mpl i es, an
I ndependent Gover nment Est i mat e i s an est i mat e made by t he
Gover nment . Thi s sect i on wi l l def i ne and consi der t hr ee
t ypes of I ndependent Gover nment Est i mat e.
The most common i s t he I ndependent Gover nment Est i mat e
t hat accompani es t he purchase request.
A value analysis estimate r esul t s f r oma speci al i zed
anal ysi s of t he f unct i on of a pr oduct and i t s r el at ed
pr i ce. I t may l i t er al l y i nvol ve t aki ng t he i t emapar t
t o det er mi ne how i t i s made and why i t cost s what i t
does.
A visual analysis estimate r esul t s f r oma vi sual
i nspect i on of an i t em, or dr awi ng of an i t em, t o
est i mat e i t s pr obabl e val ue.
General Guidelines on Using Independent Government
Estimates. Ear l i er i n t hi s t ext , you l ear ned f i ve
quest i ons t o ask when anal yzi ng t he r el i abi l i t y and
val i di t y of Gover nment pur chase r equest est i mat es. Ask t he
same quest i ons of any I ndependent Gover nment Est i mat e
bef or e usi ng i t as a basi s f or compar i son wi t h of f er ed
pr i ces.
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?
Special Considerations for Using Value Analysis. You may
appl y t he t echni ques of val ue anal ysi s t o any pr oduct ,
r egar dl ess of i t s compl exi t y. However , gener al l y consi der
onl y t hose pr oduct s of f er i ng pot ent i al cost r educt i ons t hat
mer i t t he t i me and cost of t he anal ysi s r equi r ed.
Val ue anal ysi s pr ovi des i nf or mat i on on pr oduct val ue i n
compar i son wi t h possi bl e subst i t ut es. I t i s par t i cul ar l y
usef ul when:
The I ndependent Gover nment Est i mat e i s t he onl y pr i ce
anal ysi s base avai l abl e; or
The pr oduct does not seemt o be wor t h t he pr i ce
quot ed.
To be ef f ect i ve, val ue anal ysi s must be per f or med by
i ndi vi dual s f ami l i ar wi t h t he pr oduct and i t s use by t he
Gover nment . Act ual anal ysi s shoul d f ol l ow a 5- st ep pr ocess:
1. Det er mi ne acqui si t i on cost s based on cur r ent pr oposal
or ot her est i mat es.
2. Assur e Gover nment r equi r ement document s r ef l ect t he
mi ni mumneeds of t he Gover nment .
3. I dent i f y al t er nat i ve pr oduct s or met hods of meet i ng
t he mi ni mumneeds of t he Gover nment . Thi s i s t ypi cal l y
t he key st ep i n t he anal ysi s. The f ol l owi ng ar e
exampl es of quest i ons you shoul d consi der :
Can any part of the product be eliminated?
Can a standard part replace a special part?
Can a lower cost material or method be used?
Can paperwork requirements be reduced?
Can the product be packaged more
economically?
4. Est i mat e t he cost s associ at ed wi t h al t er nat i ve
pr oduct s or met hods t hat woul d meet t he mi ni mumneeds
of t he Gover nment .
5. Document t he r easonabl eness of t he cur r ent pr i ces or
r ecommend appr opr i at e changes. Assur e t hat t he pr ocess
and r esul t s of t he val ue anal ysi s ar e cl ear l y
document ed and i ncl ude a copy of t he document at i on i n
t he cont r act f i l e. When you ar e sat i sf i ed t hat t he
val ue r ecei ved suppor t s t he of f er ed pr i ce, use t hat
i nf or mat i on t o suppor t your det er mi nat i on of pr i ce
r easonabl eness. When you ar e not sat i sf i ed, use t he
i nf or mat i on t o document ef f or t s t o br i ng pr i ce i n l i ne
wi t h per cei ved val ue.
For example: Suppose you ar e pur chasi ng a pai r of shoes.
Shoes ar e used t o wal k i n, t o pr ot ect t he f eet , t o keep t he
f eet war m, and t o enhance appear ance. I f shoes ar e t o be
at t r act i ve, t hey must be made of cer t ai n t ypes and qual i t y
of mat er i al . I f appear ance i s not i mpor t ant t o t he
Gover nment , a l ess at t r act i ve, l ess expensi ve, but possi bl y
mor e dur abl e mat er i al can be used. By changi ng t he qual i t y
of mat er i al r equi r ed, pr i ce wi l l change.
Special Considerations for Using Visual Analysis. I n
vi sual anal ysi s, t he anal yst exami nes obvi ous ext er nal
f eat ur es of t he pr oduct t o det er mi ne val ue and r el at ed
pr i ce. Thi s t echni que i s not hi ng mor e t han t echni cal
exper t s compar i ng t he pr oduct wi t h ot her pr oduct s by si ght .
Consi der usi ng vi sual anal ysi s as a pr i ci ng t ool :
I n pl ace of val ue anal ysi s f or pr oduct s t hat do not
of f er pot ent i al cost r educt i ons t hat mer i t t he t i me
and cost of anal ysi s r equi r ed f or det ai l ed val ue
anal ysi s.
To r evi ew l ar ge number s of pr oduct s t o i dent i f y any
t hat appear t o of f er pot ent i al cost r educt i ons t hat
mer i t t he t i me and cost associ at ed wi t h det ai l ed val ue
anal ysi s.

6.2 Identifying Factors That Affect Comparability
Introduction. When compar i ng pr i ces, you must at t empt t o
account f or any f act or s t hat af f ect compar abi l i t y. The
f ol l owi ng f act or s deser ve speci al consi der at i on because
t hey af f ect many pr i ce anal ysi s compar i sons:
Mar ket condi t i ons;
Quant i t y or si ze;
Geogr aphi c l ocat i on;
Pur chasi ng power of t he dol l ar ;
Ext ent of compet i t i on;
Technol ogy; and
Gover nment uni que r equi r ement s.
Market Conditions. Mar ket condi t i ons change. The passage
of t i me usual l y i s accompani ed by changes i n suppl y,
demand, t echnol ogy, pr oduct desi gns, pr i ci ng st r at egi es,
l aws and r egul at i ons t hat af f ect suppl i er cost s, and ot her
such f act or s. An ef f or t t o equat e t wo pr i ces, separ at ed by
f i ve year s, t hr ough a si mpl e i nf l at i on adj ust ment may not
be successf ul . Too many char act er i st i cs of t he mar ket ar e
l i kel y t o have changed. Do not st r et ch dat a beyond t hei r
l i mi t s.
Gener al l y sel ect t he most r ecent pr i ces avai l abl e. The
gr eat er t he t i me di f f er ence, t he gr eat er t he l i kel i hood and
i mpact of di f f er ences i n mar ket condi t i ons. I f you ar e
compar i ng a cur r ent of f er wi t h a pr i or pr i ce, t he i deal
compar i son woul d be wi t h a cont r act pr i ce agr eed t o
yest er day. That compar i son woul d l i mi t t he ef f ect s of t i me
on mar ket condi t i ons.
However , do not sel ect a pr i ce f or compar i son mer el y
because i t i s t he most r ecent . Look instead for prices that
were established under similar market conditions. For
i nst ance, i f you ar e buyi ng pot at oes i n Oct ober , of f er s
f r omt he pr evi ous Oct ober may be mor e compar abl e t o cur r ent
of f er s t han pr i ces pai d l ast Febr uar y, gi ven t he cycl i cal
pat t er n of suppl y and demand i n t he mar ket f or pot at oes.
Consi der t he most cur r ent avai l abl e dat a on t r ends and
pat t er ns i n mar ket condi t i ons. Remember t hat l ags of t en
occur bet ween dat a col l ect i on and cont r act awar d. Changes
i n mar ket condi t i ons over t hat per i od can r educe t he
usef ul ness of t he dat a assembl ed.
Quantity or Size. Var i at i ons i n quant i t y can have a
si gni f i cant i mpact on uni t pr i ce. A change i n quant i t y can
have an upwar d ef f ect , a downwar d ef f ect , or no ef f ect at
al l .
I n supply and equipment acqui si t i ons, we usual l y assume
t hat l ar ger suppl y acqui si t i ons command l ower uni t pr i ces.
Wher e economi es of scal e ar e i nvol ved, t hat shoul d be t he
case. However , economi es of scal e do not al ways appl y.
I ncr eases i n or der si ze beyond a cer t ai n poi nt may t ax
a suppl i er ' s capaci t y and r esul t i n hi gher pr i ces.
Mar ket f or ces may i mpose oppor t uni t y cost s on a
suppl i er whi ch r esul t i n hi gher uni t cost s f or gr eat er
vol umes. For exampl e, i f t he pr i ce of oi l i s expect ed
t o i ncr ease 20 per cent over a 12- mont h per i od, a
suppl i er may choose t o wi t hhol d a por t i on f or a sal e
at a l at er dat e when t he pr i ce i s hi gher . I n such a
mar ket , t he ef f ect of pur chase quant i t y on pr i ce may
not be as expect ed; at some poi nt , i ncr eases i n vol ume
wi l l r esul t i n hi gher uni t pr i ces as t he suppl y of t he
l ower pr i ced oi l i s exhaust ed.
Fi nal l y, i f a pr i ce compar i son i s based on st andar d
commer ci al i t ems t hat ar e pr oduced at a r egul ar r at e,
var i at i ons i n quant i t y may have no ef f ect at al l .
A meani ngf ul compar i son of pr i ces r equi r es t hat t he
ef f ect of vol ume on pr i ce be account ed f or . The best way t o
do t hi s i s t o sel ect pr i ces f or compar i son based on equal
vol umes. I f t hat i s not possi bl e, exami ne t he speci f i c
suppl i er s and t he nat ur e of t he mar ket at t he t i me of t he
pur chase.
I n service acquisitions, t he pr obl ems ar e di f f er ent .
Var i at i ons i n si ze can somet i mes be neut r al i zed by r educi ng
t he compar i son t o pr i ce per squar e f oot or pr i ce per
pr oduct i ve l abor hour . Because t hese appr oaches ar e not
al ways ef f ect i ve, t r y t o f act or out si ze or quant i t y
var i at i ons as much as possi bl e. I f you don' t succeed, t he
pr i ce compar i son wi l l have l i t t l e val ue.
Geographic Location. Geogr aphy can have a r ange of ef f ect s
on compar abi l i t y. Pr i ces f or many nat i onal l y adver t i sed
pr oduct s wi l l not var y much f r ompl ace t o pl ace.
Never t hel ess, because geogr aphi c l ocat i on can af f ect
compar abi l i t y, you shoul d f i r st t r y t o compar e of f er ed
pr i ces wi t h pr i ces obt ai ned f r omt he same ar ea. I n maj or
met r opol i t an cent er s, you shoul d gener al l y be abl e t o
i dent i f y compar abl e bases f or pr i ce anal ysi s i n t he r egi on.
I n mor e r emot e, l ess ur ban ar eas, you must of t en get
pr i ci ng i nf or mat i on f r ombeyond t he i mmedi at e ar ea.
When you must compar e pr i ces acr oss geogr aphi c
boundar i es, t ake t he f ol l owi ng act i ons t o enhance
compar abi l i t y.
Check f or di f f er ences i n t he l evel compet i t i on t hat
may af f ect pr i ce compar i sons.
I dent i f y l abor r at e di f f er ences t hat must be
neut r al i zed f or val i d pr i ce compar i sons.
Check f r ei ght r equi r ement s and accompanyi ng cost s.
These can var y consi der abl y, especi al l y f or chemi cal s
and ot her hazar dous mat er i al s.
I dent i f y geogr aphi c anomal i es or t r ends. For exampl e,
an i t emmay be mor e expensi ve on t he West Coast t han i n t he
East .
Purchasing Power of the Dollar. I nf l at i on under mi nes
compar abi l i t y by er odi ng t he r eal val ue of money. Because
pr i ces over t i me ar e expr essed i n t he same cur r ency
( dol l ar s and cent s) , t he denomi nat i ons must have compar abl e
pur chasi ng power i f compar i son i s t o be meani ngf ul . You can
nor mal l y use pr i ce i ndex number s t o adj ust f or t he changi ng
val ue of t he dol l ar over t i me.
Extent of Competition. When compar i ng one pr i ce wi t h
anot her , assess t he compet i t i ve envi r onment shapi ng t he
pr i ces. For exampl e, you can compar e l ast year ' s
compet i t i ve pr i ce wi t h a cur r ent of f er f or t he same i t em.
However , i f l ast year ' s pr ocur ement was made wi t hout
compet i t i on, you may not have a good pr i ce wi t h whi ch t o
compar e t he cur r ent of f er . A poor l y wr i t t en speci f i cat i on
and an ur gent need may have combi ned t o make compet i t i on
i mpossi bl e l ast year , but now t he speci f i cat i ons have been
r ewr i t t en and t he del i ver y i s not ur gent . Gi ven t hese
ci r cumst ances, a cur r ent of f er coul d be t he same as ( or
l ess t han) l ast year ' s best pr i ce and st i l l not be
r easonabl e.
Technology. Pr i ces f r omdyi ng i ndust r i es can r i se because
t he t echnol ogi es don' t keep pace wi t h r i si ng cost s.
Conver sel y, t echnol ogi cal advances i n gr owt h i ndust r i es can
dr i ve pr i ces down. The comput er i ndust r y i s an exampl e.
Technol ogi cal advances have been made so f ast t hat a
compar i son of pr i ces separ at ed by onl y a f ew weeks must
account f or t hese advances i f t he compar i son i s t o have any
val ue.
Engi neer i ng or desi gn changes must al so be t aken i nt o
account . Thi s means you must i dent i f y t he new or modi f i ed
f eat ur es and est i mat e t hei r ef f ect on pr i ce.
Government-Unique Requirements. Of t en, t he Gover nment ' s
r equi r ement s var y t o some degr ee f r omt he commer ci al
r equi r ement s f or si mi l ar pr oduct s. The quest i on i s t he
i mpact t hese var i at i ons have on pr i ce. For exampl e, t he
Gover nment may r equi r e t hat t he car pet i n a Navy shi p be
f i r epr oof t o a f ar gr eat er ext ent t han any commer ci al
car pet . That may j ust i f y a subst ant i al di f f er ence i n pr i ce
over ot her wi se compar abl e commer ci al car pet s.
Si mi l ar l y, you must of t en i ncor por at e cl auses i n
cont r act s t hat ar e not r equi r ed i n commer ci al mar ket
t r ansact i ons. For exampl e, cont r act s bet ween buyer s and
sel l er s i n t he pr i vat e sect or do not i ncl ude pr ovi si ons
r el at i ng t o t he Davi s- Bacon Act , t he Ser vi ce Cont r act Act ,
cl ean ai r and wat er , and many ot her speci al condi t i ons.
Consequent l y, compar i son of an of f er wi t h commer ci al pr i ces
may be di f f i cul t . Uni que t er ms and condi t i ons af f ect
pr i ces, but i t i s of t en ext r emel y di f f i cul t t o assi gn a
dol l ar val ue t o t hei r ef f ect s.
J ust as Gover nment r equi r ement s may be di f f er ent f r om
commer ci al r equi r ement s, Gover nment r equi r ement s at a
speci f i c t i me and pl ace may be di f f er ent t han r equi r ement s
at anot her t i me and pl ace. These di f f er ences wi l l al so
af f ect pr i ce compar i sons.

6.3 Determining The Effect Of Identified Factors
Introduction. Once you have i dent i f i ed t he f act or s t hat
may af f ect compar abi l i t y, you must det er mi ne t he ef f ect on
each speci f i c compar i son wi t h t he of f er ed pr i ce. As you
det er mi ne t he ef f ect of var i ous f act or s on pr i ce
compar i sons, you must ask your sel f t he f ol l owi ng quest i ons:
What factors affect this specific comparison?
How do these factors affect the comparison?
Does this comparison, even with its limitations,
contribute to the price analysis?
Other Proposed Prices ( FAR 15. 206) . I n seal ed bi ddi ng, al l
bi ds ar e pr i ced agai nst t he cont r act r equi r ement s.
Compar i son wi t h compet i t i ve pr i ces i s a st r ai ght f or war d
compar i son t hat nor mal l y r equi r es no adj ust ment s unl ess t he
eval uat i on pr ocess i nvol ves t he use of pr i ce- r el at ed
f act or s.
Compar i ng pr oposal s may not be as si mpl e as compar i ng
bi ds, when:
The of f er i n l i ne f or awar d depar t s f r omt he st at ed
sol i ci t at i on r equi r ement s. I f t he depar t ur e does not
meet st at ed cont r act r equi r ement s, but i s accept abl e
t o t he Gover nment , pr ovi de ot her of f er or s t he
oppor t uni t y t o submi t a r evi sed pr oposal based on t he
r evi sed r equi r ement s. However , you must not r eveal any
i nf or mat i on about t he pr oposed sol ut i on or any ot her
of f er or i nf or mat i on ent i t l ed t o pr ot ect i on.
Of f er s di f f er i n t hei r basi c appr oaches t o meet i ng
per f or mance or f unct i onal r equi r ement s. Remember , t he
pr i ce of a cer ami c mug i s l i t t l e hel p i n det er mi ni ng
i f t he pr i ce of a paper cup i s r easonabl e, even t hough
bot h can sat i sf y a r equi r ement f or a cont ai ner t hat
wi l l hol d ei ght ounces of cof f ee.
Commercial Prices. Any of t he gener al f act or s i dent i f i ed
ear l i er i n t hi s chapt er coul d af f ect t he compar abi l i t y of
commer ci al pr i ces ( i . e. , mar ket condi t i ons may have changed
si nce t he ef f ect i ve dat e of publ i shed pr i ces; t he
pur chasi ng power of t he dol l ar may have changed; t he
publ i shed pr i ces may have been based on di f f er ent t er ms and
condi t i ons t han sol i ci t ed by t he Gover nment ) .
Dur i ng your anal ysi s, you shoul d gi ve speci al
consi der at i on t o aski ng how t he f ol l owi ng have af f ect ed
pr i ce anal ysi s compar i sons:
I s t her e a di f f er ence bet ween t he ser vi ces pr ovi ded
commer ci al and Gover nment cust omer s? Ar e publ i shed
pr i ces r et ai l , whol esal e, or di st r i but or pr i ces?
I s t her e a di f f er ence bet ween t he cat al og ( or
suggest ed pr i ce) and t he pr i ce pai d by commer ci al
cust omer s wi t h r equi r ement s si mi l ar t o t he
Gover nment ' s r equi r ement s?
Ar e t her e di f f er ent pr i ces f or di f f er ent cust omer
cl asses ( e. g. , ar e t her e di f f er ent pr i ces f or
di f f er ent cl asses of cust omer s- publ i c vs. br oker s vs.
r et ai l er s?)
What speci al r ebat es or di scount s ar e of f er ed
commer ci al cust omer s?
What i s t he val ue of ext r as pr ovi ded commer ci al
cust omer s f or pr omot i onal pur poses ( e. g. , f r ee packagi ng,
f r ee t r anspor t at i on, f r ee i nsur ance, et c. ) wi t hout ext r a
char ge?
Previously Proposed Prices and Contract Prices. Consi der
al l gener al f act or s i dent i f i ed ear l i er i n t he chapt er . At
mi ni mum, ask t he f ol l owi ng:
How have the specific changes in the contracting
situation affected contract price?
You need t o under st and t he acqui si t i on si t uat i on as i t
exi st ed i n t he pr evi ous si t uat i on and how t he cur r ent
acqui si t i on si t uat i on di f f er s. I mpor t ant dat a el ement s
i ncl ude:
o Sour ces
o Quant i t i es
o Pr oduct i on/ Del i ver y Rat es
o St ar t - up Cost s
o Ter ms of Pur chase
How have changes in the general economic situation
affected contract price?
Economi c changes ar e r ef l ect ed i n t he gener al l evel of
i nf l at i on or def l at i on r el at ed t o t he pr oduct t hat you ar e
acqui r i ng. Have pr i ces gone up or down. I f t hey have, how
much have t hey changed?
Parametric and Rough Yardstick Estimates. Consi der al l
gener al f act or s i dent i f i ed ear l i er i n t he chapt er . I n
par t i cul ar consi der t he quest i ons above t hat appl y t o
hi st or i cal pr i ces. Af t er al l pr i ci ng yar dst i cks ar e based
on hi st or i cal pr i ci ng i nf or mat i on.
I n addi t i on, you must ask i f t he hi st or i cal r el at i onshi p
r emai ns val i d. As a mi ni mum, consi der t he f ol l owi ng
quest i ons:
How have changes in market conditions affected the
estimating relationship?
How have changes in technology affected the estimating
relationship?
How have changes in production efficiency affected the
estimating relationship?
How have changes in the purchasing power of the dollar
affected the estimating relationship?
Independent Government Estimates. Consi der al l gener al
f act or s i dent i f i ed ear l i er i n t he chapt er f or possi bl e
ef f ect s on compar abi l i t y.
I ndependent Gover nment Est i mat es, especi al l y t hose
devel oped pr evi ousl y f or such pur poses as pr epar i ng
budget s, may no l onger be val i d. Budget opt i mi smor
pessi mi smcan have a si gni f i cant ef f ect on budget
est i mat es. I n addi t i on, many est i mat es ar e devel oped year s
bef or e t he act ual cont r act act i on i s i ni t i at ed.

6.4 Adjusting The Prices Selected For Comparison
Introduction. I f you have a pr i ce anal ysi s compar i son base
t hat does not r equi r e adj ust ment , use i t ! I f you must make
an adj ust ment , t r y t o make t he adj ust ment as obj ect i vel y as
possi bl e. You may need t o use st at i st i cal t echni ques or
al gebr ai c f or mul as t o est abl i sh a common basi s f or
compar i son.
You must compl et e t wo basi c t asks i n or der t o est abl i sh
compar abi l i t y:
I dent i f y and document pr i ce- r el at ed di f f er ences,
t aki ng i nt o account t he f act or s af f ect i ng
compar abi l i t y.
Fact or out pr i ce- r el at ed di f f er ences.
Rest or i ng compar abi l i t y by est abl i shi ng a common basi s
f or compar i son r equi r es t hat you assi gn a dol l ar val ue t o
each i dent i f i ed di f f er ence. However , you cannot al ways do
t hi s. The cost of t er ms and condi t i ons pecul i ar t o
Gover nment cont r act s i s har d t o est i mat e, so exer ci se
di scr et i on i n such cases.
Other Proposed Prices. Appl y any pr i ce- r el at ed f act or s
est abl i shed i n t he sol i ci t at i on, t o adj ust t he of f er ed
pr i ces f or compar i son wi t h one anot her .
Other Information. The chal l enge i s t o use t he avai l abl e
i nf or mat i on and t o est i mat e t he pr i ce t hat t he Gover nment
shoul d pay.
Use avai l abl e i nf or mat i on t o est i mat e t he ef f ect of
each f act or on cont r act pr i ce. I n t hi s ef f or t use
appr opr i at e quant i t at i ve anal ysi s t echni ques.
I f you cannot obj ect i vel y adj ust t he pr i ces f or t he
f act or i nvol ved, you may need t o make a subj ect i ve
adj ust ment . For exampl e, est i mat i ng t he ef f ect on pr i ce of
uni que Gover nment t er ms and condi t i ons.
Ever y acqui si t i on si t uat i on wi l l be di f f er ent . What ever
met hod you use, al ways document t he i nf or mat i on t hat you
used and how you used i t i n maki ng t he adj ust ment .

6.5 Comparing Adjusted Prices
Introduction. Use adj ust ed pr i ces t o est i mat e r ange of
r easonabl e pr i ces. Use t he pr i ce t hat appear s most
r easonabl e as your shoul d- pay pr i ce.
I f t he shoul d- pay pr i ce depar t s si gni f i cant l y f r omt he
appar ent successf ul of f er , anal yze t he di f f er ences. You
wi l l t hen be r eady t o make t he pr i ce- r el at ed deci si ons
r equi r ed t o det er mi ne t he successf ul of f er or and make
cont r act awar d.
Other Proposed Prices. Compar i ng compet i t i ve of f er s i s
nor mal l y t he easi est f or mof pr i ce anal ysi s. I t al so t ends
t o be t he most val i d, because you ar e compar i ng of f er s
pr epar ed f or t he same r equi r ement under t he same mar ket
condi t i ons. However , t he wei ght pl aced on t hi s t ype of
compar i son depends on t he ci r cumst ances of t he acqui si t i on.
Pl ace l ess wei ght on compet i t i ve pr i ces ( r el at i ve t o ot her
pr i ce compar i sons) when:
Adequat e pr i ce compet i t i on does not exi st ( r egar dl ess
of t he number of of f er s) - i n whi ch case t he wei ght
shoul d be zer o.
Rel at i vel y f ew of t he r esponsi bl e f i r ms i n t he
i ndust r y submi t t ed r esponsi ve of f er s ( especi al l y i f
t he condi t i ons of t he sol i ci t at i on unr easonabl y deni ed
such f i r ms a chance t o compet e) .
The appar ent of f er or appear s t o enj oy an unf ai r
compet i t i ve advant age.
Havi ng used a per f or mance or f unct i onal speci f i cat i on,
t he appar ent successf ul of f er or ' s pr oposed appr oach i s
l ess compar abl e t o ot her pr oposed appr oaches t han ( a)
t o wor k per f or med under pr i or cont r act s or ( b)
commer ci al cont r act s.
The del i ver abl e i n l i ne f or awar d i s l ess compar abl e
t o ot her of f er ed del i ver abl es t han t o ( a) t hose
acqui r ed under pr i or cont r act s or t o ( b) commer ci al
cont r act s.
The appar ent successf ul of f er i s si gni f i cant l y out of
l i ne wi t h ot her of f er s.
The appar ent successf ul of f er i s si gni f i cant l y out of
l i ne ( ei t her l ower or hi gher ) wi t h est i mat es of t he
shoul d- pay pr i ce f r omot her t ypes of compar i sons ( t o
t he ext ent t hat ot her compar i sons ar e r el i abl e and
val i d i ndi cat or s of t he shoul d- pay pr i ce) .
The cost of t he acqui si t i on i s subst ant i al . The l ar ger
t he dol l ar val ue of t he cont r act , t he mor e i mpor t ance
you shoul d pl ace on si zabl e di f f er ences i n dol l ar s
bet ween di f f er ent t ypes of compar i sons ( even i f t he
di f f er ences ar e modest when expr essed as per cent ages) .
Commercial Prices. Ask t he f ol l owi ng quest i ons t o
det er mi ne t he wei ght t hat shoul d be pl aced on compar i sons
wi t h commer ci al pr i ces.
Can the offeror explain any differences between the
offered price and its own commercial prices?
The of f er or must be abl e t o expl ai n any di f f er ences bet ween
t he of f er ed pr i ce and commer ci al pr i ces. You may base
pr i ces f or a f ami l y of pr oduct s on a si ngl e base pr oduct .
For exampl e, a r adi o t r anscei ver may r equi r e di f f er ent
connect or s and adapt er s t o wor k wi t h di f f er ent syst ems. The
par t number may even be di f f er ent f or each syst em, but t he
basi c component i s t he same. I f t he of f er or can suppor t t he
pr i ce of t he var i ous r el at ed pr oduct s by usi ng t he pr i ce of
t he basi c component , pl us t he cost of t he addi t i onal
devi ces, you can use t hat dat a t o pr i ce t he ent i r e f ami l y
of pr oduct s.
Is your purchase situation different from the typical
commercial market situation?
Even when you gr ant an except i on f r omt he submi ssi on of
cost or pr i ci ng dat a based on commer ci al pr i ci ng, you do
not have t o accept t he commer ci al pr i ce as t he cont r act
pr i ce. I f you f eel t hat t he ci r cumst ances of your pur chase
ar e di f f er ent , you shoul d at t empt t o negot i at e a di f f er ent
pr i ce.
Do other price analysis bases confirm that the offered
price is
reasonable?
I f ot her bases i ndi cat e t hat t he of f er ed pr i ce i s f ai r and
r easonabl e, use t hat i nf or mat i on i n pr epar i ng your pr i ce
negot i at i on obj ect i ves.
Previously Proposed Prices and Contract Prices. Ask t he
f ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d be
pl aced on compar i sons wi t h hi st or i cal pr i ces.
How does the offered price compare with the historical
price, considering changes in the contracting
situation?
You may be abl e t o use quant i t at i ve t echni ques t o adj ust
pr i ces f or changes i n t he cont r act i ng si t uat i on. I f you
cannot , you must subj ect i vel y anal yze t he changes.
Do other types of price comparisons confirm that the
offered price is reasonable?
Because of t he changes i n t he acqui si t i on si t uat i on,
hi st or i cal pr i ces t ypi cal l y do not pr ovi de a pr eci se base
f or det er mi ni ng pr i ce r easonabl eness. I f possi bl e, use
ot her bases of pr i ce anal ysi s t o conf i r mt hat t he of f er ed
pr i ce i s f ai r and r easonabl e.
Parametric and Rough Yardstick Estimates. Ask t he
f ol l owi ng quest i ons t o det er mi ne t he wei ght t hat shoul d be
pl aced on compar i sons wi t h par amet r i c or r ough yar dst i ck
est i mat es.
How does the offered price compare with the price
developed using the pricing relationship?
Use t he appr opr i at e pr i ce anal ysi s t echni que( s) t o est i mat e
t he shoul d- pay pr i ce. Compar e t he of f er ed pr i ce wi t h t he
est i mat ed pr i ce, and car ef ul l y document t he t echni ques and
t he j udgment you use i n your anal ysi s.
Do other types of price comparisons confirm that the
offered price is reasonable?
Because of i t emdi f f er ences, pr i ci ng r el at i onshi ps
t ypi cal l y cannot pr eci sel y conf i r mor r ef ut e pr i ce
r easonabl eness. I f possi bl e, use ot her pr i ce compar i sons t o
conf i r mt hat t he of f er ed pr i ce i s f ai r and r easonabl e.
Independent Government Estimates. Remember t hat your
r el i ance on I ndependent Gover nment Est i mat es shoul d al ways
be t emper ed by your answer s t o t he f ol l owi ng quest i ons:
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?
Pl ace no wei ght on an I ndependent Gover nment Est i mat e
t hat or i gi nat ed wi t h an of f er or or i s a sheer guess. I f t he
I ndependent Gover nment Est i mat e t ur ns out t o be a past
cont r act pr i ce, anal yze t hat pr i ce as you woul d any
hi st or i cal pr i ce.
On t he ot her hand, you mi ght pl ace gr eat conf i dence i n
I ndependent Gover nment Est i mat es bui l t t hr ough det ai l ed
anal ysi s - dependi ng on how wel l t hat anal ysi s was done.