Overview
FAR 15.401 establishes the foundational terminology for the "Contract Pricing" subpart, specifically defining "Price" and clarifying the scope of what constitutes a "Subcontract." These definitions ensure consistency in how costs, profits, and inter-company transfers are treated during negotiations and price analyses.
Key Rules
- Definition of Price: Price is explicitly defined as the total sum of all allowable costs plus any applicable fee or profit, dictated by the specific contract type (e.g., firm-fixed-price vs. cost-plus-fixed-fee).
- Expanded Scope of Subcontract: For pricing purposes, a subcontract includes more than just third-party agreements; it also covers the transfer of commercial products or services between a contractor’s own divisions, subsidiaries, or affiliates.
- Legal Statutory Alignment: The definition of subcontracting for inter-company transfers is aligned with federal statutes 10 U.S.C. 3701(2) and 41 U.S.C. 3501(a)(3).
- Exclusion: The expanded definition of "Subcontract" regarding inter-organizational transfers does not apply to FAR 15.407-2 (Make-or-buy programs).
Practical Implications
- Inter-company Pricing: Contractors must treat internal transfers of commercial items as subcontracts, which may necessitate formal price analyses or justification of "fair and reasonable" pricing even when dealing with affiliated entities.
- Negotiation Clarity: By defining price as cost plus profit/fee, the regulation ensures that both Government COs and contractors are negotiating toward a total "bottom line" figure that accounts for all elements of the contract value.