Subpart 15.4 - Contract Pricing

Overview

FAR Subpart 15.4 prescribes the policies and procedures for establishing fair and reasonable prices in negotiated prime contracts, subcontracts, and contract modifications. It outlines the requirements for obtaining certified cost or pricing data—as mandated by the Truthful Cost or Pricing Data statute (formerly TINA)—and defines the various analysis techniques used to evaluate offerors' proposals.

Key Rules

• Fair and Reasonable Pricing: Contracting Officers (COs) must purchase supplies and services at fair and reasonable prices, using price analysis, cost analysis, or cost realism analysis.
• Certified Cost or Pricing Data Threshold: As of July 1, 2018, the threshold for requiring certified cost or pricing data is $2.5 million.
• Order of Preference for Data: COs should obtain only the minimum data necessary. The preference is:
  1. No additional data (if adequate price competition exists).
  2. Data other than certified cost or pricing data (market prices, catalog prices).
  3. Cost data (if no other means exist to determine price reasonableness).
• Exceptions to Certified Data: Certification is not required when:
  • Prices are based on adequate price competition.
  • Prices are set by law or regulation.
  • Acquiring a commercial product or commercial service.
  • A waiver is granted by the Head of Contracting Activity (HCA).
  • The action is at or below the Simplified Acquisition Threshold (SAT).
• Modification Pricing: When determining if a modification exceeds the $2.5M threshold, the CO must consider the aggregate value of both increases and decreases (e.g., a $1.5M increase and a $1.1M decrease total $2.6M and require certified data).
• Prohibition on "Offsetting": COs must price each contract independently and cannot use profits or losses from other contracts to influence the current negotiation.

Responsibilities

• Contracting Officers (COs):
  • Establishing the "fair and reasonable" determination.
  • Specifying the format for data submission in solicitations.
  • Determining which exceptions to certified cost or pricing data apply.
  • Ensuring data used in negotiations is current, accurate, and complete.
• Head of Contracting Activity (HCA):
  • Authorizing waivers for the submission of certified cost or pricing data.
  • Approving the requirement for certified data for actions below the $2.5M threshold (but above the SAT) when necessary.
• Offerors/Contractors:
  • Submitting certified cost or pricing data when required.
  • Providing a "Certificate of Current Cost or Pricing Data" certifying that data is accurate, complete, and current as of the date of agreement on price.
  • Providing "data other than certified cost or pricing data" to support commerciality or price reasonableness when requested.

Practical Implications

• Compliance Burden: For contracts exceeding $2.5M that do not meet an exception, contractors face a significant administrative burden to "certify" their data. Inaccuracy or omission can lead to "Defective Pricing" claims and subsequent price reductions.
• Commerciality Strategy: Contractors often seek "Commercial Product/Service" determinations to avoid the rigorous disclosure requirements of certified cost or pricing data. However, the CO still has the right to request "data other than certified" (such as redacted invoices to other customers) to perform price analysis.
• Negotiation Timelines: Requesting excessive data can significantly extend the acquisition lead time. COs are encouraged to use "Price Analysis" (comparing the bottom-line price) before resorting to "Cost Analysis" (examining every line item of labor and overhead), which is more invasive and time-consuming.
• Data Format: While the Government can mandate a format for certified data, they are generally required to accept "data other than certified cost or pricing data" in the contractor’s own format to minimize the burden on the private sector.