Overview
FAR 25.106 establishes the specific price evaluation factors used to provide a competitive advantage to domestic end products over foreign end products under the Buy American statute. It defines "reasonable cost" by prescribing a mathematical formula where a percentage penalty is added to a foreign offer's price to determine if a higher-priced domestic offer should be selected.
Key Rules
- Standard Evaluation Factors: To determine if a domestic offer's price is reasonable compared to a low foreign offer, the Contracting Officer (CO) must add a factor to the foreign offer of:
- 20 percent if the lowest domestic offer is from a large business.
- 30 percent if the lowest domestic offer is from a small business.
- Critical Items/Components: For products designated as "critical," the CO must add the standard 20% or 30% factor plus an additional preference factor specifically identified in FAR 25.105.
- Trade Agreements Exception: Evaluation factors are not applied to "eligible products" if the acquisition is subject to a trade agreement under FAR subpart 25.4.
- Domestic Content "Bridge": Until January 1, 2030, if no domestic offer is received or the domestic offer is unreasonable, a foreign end product with more than 55% domestic content (but less than the current domestic threshold) may be treated as a domestic offer for evaluation purposes.
- Agency Discretion: Agency heads may determine that evaluation factors higher than the standard 20%/30% are more appropriate, provided they are published in agency regulations.
Practical Implications
- Domestic contractors can remain competitive even if their bid is significantly higher (up to 30% or more) than a foreign competitor's price.
- Contracting Officers must perform a multi-step price evaluation "normalization" process before making an award, ensuring they correctly identify the business size of the offeror and the criticality of the item to apply the correct percentage.