Proposed DFARS rule: Evaluating price reasonableness for commercial items

The newly proposed rule (DFARS Case 2013–D034) implements section 831 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013. When certified cost or pricing data are not required, offerors must provide “data other than certified cost or pricing data to the extent necessary to determine the reasonableness of the price” (10 U.S.C. 2306a(d)(1)) for other types of procurements, such as commercial-item acquisitions.  Section 831 paragraph (a) of the NDAA requires DOD to issue additional guidance to:

• Include standards for determining whether information on the prices at which the same or similar items have previously been sold is adequate for evaluating reasonableness;
• Include standards for determining the extent of uncertified cost information required when price information is not adequate for evaluating reasonableness;
• Ensure that in cases in which uncertified cost information is required, the information is provided in the form in which it is regularly maintained by the offeror; and
• Provide that DoD cannot require additional cost information if sufficient nongovernment sales exist to establish reasonableness of price.

DoD’s proposed rule introduces several new concepts and procedures, some of which may be helpful – while others are not.  In the context of established commercial products, the new rule may not create much controversy.  However, in the context of commercial services (especially professional and technical services) and new commercial products (or commercial products “of a type”), the only helpful feature of the new rule is the emphasis on “market pricing” rather than “market prices.”  Express consideration of the process used to develop market prices (rather than just the output of that process) provides contractors and contracting officers a broader avenue to demonstrate price reasonableness.  The following summary provides some additional insight and commentary on certain other interesting provisions:

Key Sections

Takeaways

Defines key terms such as “market-based pricing”, “uncertified cost data”, and “relevant sales data.”

A strong likelihood of market-based pricing exists “when nongovernmental buyers in a commercial market place account for a preponderance (50 percent or more) of sales by volume of a particular item.”

Establishes pricing policy for assessing reasonableness and adequacy of information on prices and uncertified cost data.

The standard to assess the adequacy of information on prices and whether or not the information is necessary to determine a fair and reasonable price is whether or not a prudent person would conclude as such. 

Provides instructions for submission of data other than certified cost or pricing data.

Contracting officers should not do anything to prevent the Government from obtaining any data that it desires to support a determination of fair and reasonable pricing.  Uncertified cost information, when required, shall be in the form in which it is regularly maintained by the offeror in its business operations.

Provides four preferences for obtaining relevant sales data in order to establish a valid basis for price comparison in the absence of adequate price competition.

Adds language to Section 215.404-1, which states that a contracting officer shall not obtain uncertified cost data when relevant sales data reflects market-based pricing.  While the first two preferences involve market-based pricing, the second two allow sales data that is not market-based (which may still require uncertified cost data).

Establishes evaluation criteria for sales data including age of data, relevance, volume, nature of transactions, catalog prices, and terms and conditions.

If the volume of sales data (number of transactions) is insufficient to determine whether prices are fair and reasonable, the contracting officer shall consider broadening the search (e.g., identify whether all customers were included) to obtain additional relevant sales data as necessary to make the determination.

Includes new DFARS Solicitation Provisions and Contract Clauses which supersede similar clauses in the FAR.

What’s New:

• DFARS clause 252.215-70XX broadens the Government’s ability to obtain cost data by excluding a limitation on access to cost and profit data related to catalog or market prices found in FAR clause 52.215-20(a)(2).
• “Requirements for data other than certified cost or pricing data” –requires the offeror to include all data necessary to permit a determination of fair and reasonable prices.
•  “Subcontract price evaluation” –requires offerors to obtain whatever information is necessary to support subcontract price reasonableness, which may include cost data.

Industry advocacy groups have already expressed serious reservations, including a request to withdraw this proposed rule.  Written comments will be accepted on or before October 2, 2015 to be considered for the final rule.

For more details please visit the Federal Register.