Cost Analysis Guide


                            COST  ANALYSIS

                                   GUIDE
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Pf^OCUREMEWT AND CCMERACTS I^PWAGEMEIJr DIVISION
    U. S.  ENVIQRMylENIPiL PRDThLTlCN AGEl^CY
                401 M St. , S.W.
            Washington, B.C.  20460
         Original dated January 1985
                Revised August 1990

              HEADQUARTERS LIBRARY
              ENVIRONMENTAL PROTECTION AGENCY
              WASHINGTON 1C. 20460

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                           TABLE OF CUWllMTS



  (i)  FCKEWDRD

   I.  GLOSSARY

  II,  ACQUISITION PROCESS

 III.  EPA COST REVIEW AND POLICY BRANCH

  IV..  SF 1411:  THE COST PROPOSAL

   V.  PRICE ANALYSIS TECHNIQUES

  VI.  COST ANALYSIS TECHNIQUES
          Direct Labor
          Direct Materials & Other Direct Costs
          Indirect Costs

 VII.  FEE/PROFIT

VIII.  FACILITIES CAPITAL COST OF MX3EY

  IX.  "FAIR AND REASONABLE"

   X.  IMPORTANCE OF DOCUMENTATION

  XI.  EPA FINANCIAL ANALYSIS SECTION
(Revised 8/90)

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APPENDIX

  A.  Cost Accounting Standards

  B.  Selected FAR and EPAAR Clauses

  C.  40 era Part 33 (EPA), Procurement Under Assistance

  D.  CMB Circular A-122 "Cost Principles for Non-Prof it Organizations"

  E.  CMB Circular A-87 "Cost Principles for State & Local Governments"

  F.  CMB Circular A-21 "Cost Principles for Educational Institutions"

  G.  Statistical Tools for Cost Analysis

  H.  Selected Reports from the "Accounting Mini-Series, Planning and
      Cost Advisory Branch

            •Changes From FPR to FAR:  Subpart 15.8' by Charles Young
            •compensation For Personal services:  An Analysis of the
             FAR Changes' by John Zabretsky
            'Facilities Capital Cost of Money:  An Analysis of the FPR
             & FAR Provisions' by William Cooke
            'Contract Closeout Action at EPA Headquarters and Final
             Audit of EPA's Cost ReiJribursement Contracts' by Warren
             Gilbertson
            'Direct Labor on Fixed Rate Contracts' by Marty Cook



LIST OF REFERENCE SOURCES
(Revised 8/90)

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(i
                                 I.  GLOSSARY
          ACTUAL COST;  A cost sustained in fact, on the basis of
          costs incurred, as distinguished from  forecasted or
          estimated costs.

          ALLOCABLE COSTt  A cost is allocahle if it is assignable
          or chargeable to one or more cost objectives in accordance
          with the relative benefits received or other equitable
          relationships defined or agreed to between contractual
          parties.

          BILLING RATES;  Indirect cost rates used for interim
          reimbursement on contracts.

          CONTRACT PRICING;  A series of actions used to obtain,
          evaluate, assess, verify,  and judge cost or pricing
          information, and to record the steps taken to ascertain
          that prices agreed to have been determined (found) fair
          and reasonable.
          CONTRACT PRICING PROPOSAL;
                 The instrument required of
for the submission or identification of cost
       The basic SF 1411  (Contract Pricing
      u
          an offerer
          or pricing data.
          Proposal) is the general purpose form, providing a
          standard format by which an offerer submits to the
          Government a summary of estimated (or in some instances
          incurred) costs suitable for detailed review and analysis.

          COST ACCOUNTING;  A system of accounting analysis and
          reporting on costs of production of goods or services,
          or of operation of programs, activities, functions or
          organizational units.  The system may also embrace cost
          estimating,  determination of cost standards based on
          engineering data,  and comparison of actual and standard
          costs for the purpose of aiding cost control.

          COST ANALYSIS;  The review and evaluation of a contractor's
          cost or pricing data and of the judgmental factors applied
          in projecting from the data to the estimated costs in
          order to form an opinion leading to a position on the
          degree to which the contractor's proposed costs represent
          what contract performance should cost, assuming reasonable
          economy and efficiency.  It includes appropriate veri-
          fication of cost data, evaluation of specific elements of
          costs and projection of these data to determine the effect
          on price factors like cost necessity,  allowances for
          contingencies, and the basis used for allocation of
          overhead costs.
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COST ESTIMATING;  The process of forecasting a future result
in terms of cost, based upon information available at the
time.

COST INCURREDi  A cost identified through the use of the
accrued method of accounting and reporting or otherwise
actually paid.  Cost of direct labor, direct materials,
and direct services identified with and necessary for the
performance of a contract, and all properly allocated
and allowable indirect costs as shown by the books of the
contractor.

COST OBJECTIVE;  A function, organizational subdivision,
contract, or other work unit for which cost data are de-
sired and for which provision is made to accumulate and
measure the cost of processes, products, jobs, capitalized
projects, and so forth.

COST OR PRICING DATA;  Data consisting of all facts ex-
isting up to the time of agreement on price, which prudent
buyers and sellers would reasonably expect to have a
significant effect on price negotiations.  Being factual,
these data are types of information that can be verified.
They do not reflect on the accuracy of the contractor's
judgment about estimated future costs or projections;
they do, however, reflect on the data upon which the
contractor based his judgment.

COST OVERRUN (or UNDERRUN);  A net change in contractual
amount over (under) that contemplated by a contract
target price (FPI contract), estimated cost plus fee
(any cost-reimbursement type contract), or redeterminable
price (FPR contract), due to the contractor's actual costs
being over (under) target or anticipated contract costs,
but not attributable to any other cause of cost growth
(e.g., quantity changes, engineering changes, economic
changes, or changes in estimates of program/project
costs).

COST REIMBURSEMENT;  Refers to a family of pricing
arrangements that provide for payment of allowable,
allocable and reasonable costs incurred in the performance
of a contract, to the extent that such costs are prescribed
or permitted by the contract.  In the case of a cost-plus-
fixed-fee arrangement, costs may vary under or over the
initially agreed-to estimate, but the fee remains fixed
as an expressed dollar amount and is not subject to
adjustment by reason of contractor cost experience during
the life of the contract.
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 COST  RISK;   An  assumption  of  possible monetary  loss  or  gain
 in  light  of  the job  or  work to  be  done.   One  of the  elements
 to  be considered in  the negotiation  of a  fair and  reasonable
 price> as well  as in determining the type of  contract under
 which performance will  occur.

 DEFECTIVE COST  OR PRICING  DATA:  Certified cost or pricing
 data  subsequently found to have been inaccurate, incomplete
 or  noncurrent as of  the effective  date of the certificate.
 In  this case, the Government  is entitled  to an  adjustment
 of  the negotiated price, including profit or  fee,  to exclude
 any significant sum  by  which  price was increased because
 of  the defective data,  provided the  data  were relied upon by
 the Government.

 DIRECT COST;  Any cost  that is specifically identified  with
 a particular final cost objective, but not necessarily  limited
 to  items  that are incorporated in  the end product  as
 material  or  labor.

 ECONOMIC  PRICE  ADJUSTMENT;  An alteration permitted  and
 specified by contract provisions for the  upward and/or  down-
 ward  revision of a stated  contract price  upon the  occurrence
 of  certain contingencies that are  specifically  defined  in
 the contract.

 ESCALATION;  A  term  traditionally  used to indicate an upward
 or  downward  movement of price.  "Economic price adjustment"
 is  the contemporary  term used to express  the  sense of
 "escalation."

 ESTABLISHED  CATALOG PRICE;  A .price  included  in a  catalog,
 price  list,schedule or other form that (1) is  regularly
maintained by a  manufacturer or vendor, (2) is  published or
made available  for inspection by customers, and (3)  states
 prices at which  sales are  currently  or were last made to a
 significant  number of buyers constituting  the general public.

 ESTABLISHED MARKET PRICE;  A current price, established in
 the usual and ordinary  course of trade between  buyers and
 sellers free to  bargain, which can be substantiated  from
 sources independent of  the manufacturer or  vendor,
 although  the data may be prepared  by the  seller.

 FEE;   In  specified cost-reimbursement pricing arrangements,
 fee represents  an  agreed-to amount beyond  the initial estimate
of  costs.   In most instances,  fee  reflects  a  variety of
factors,  including risk, and is subject to  statutory limita-
 tions.  Fee may  be fixed at the outset of performance,  as in
a cost-plus-fixed-fee arrangement,  or may vary  (within a
contractually specified minimum-maximum range)  during
performance, as  in a cost-plus-incentive-fee arrangement.

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FIELD PRICING SUPPORT;  Involves the analysis of contractor
pricing proposals by any or all field technical and other
specialists, including plant representatives, administrative
contracting officers, contract auditors, price analysts,
quality assurance personnel, engineers, and legal andf
small business specialists.

FINAL COST OBJECTIVE;  A cost objective that has allocated
to it both direct and indirect costs and, in the contractor's
accounting system, is one of the final accumulation points.

FINAL RATES;  Used for determination of final indirect costs
allowable to contracts.  Rates are determined on a contractor
fiscal year basis.

FIXED PRICE;  Refers to a family of pricing arrangements
whose common discipline is a ceiling beyond which the Govern-
ment bears no responsibility for payment.  In the case of
a firm fixed-price arrangement, the agreed-to price is not
subject to any adjustment by reason of the contractor's
cost experience in the performance of the contract.

FORWARD PRICING;  A pricing decision made in advance of
performance, based on analysis of comparative prices, cost
estimates, past costs or combinations of such considerations.

GENERAL AND ADMINISTRATIVE;  Indirect expenses, including a
company's general and executive offices, executive compensa-
tion, the cost of staff services such as legal, accounting,
public relations, financial and similar expenses and other
miscellaneous expenses related to the overall business.

INDIRECT COST:  Any cost not directly identified with a
single final cost objective but identified with two or more
final cost objectives or with at least one intermediate
cost objective.  Also referred to as overhead or burden.

INDIRECT COST POOL;  A grouping of projected or incurred
costs identified with two or more cost objectives but
not specifically identified with any final cost objective.

LEARNING CURVE;  A tool of calculation used primarily to
project resource requirements, in terms of direct manu-
facturing labor hours or the quantity of material (for this
purpose, usually referred to as an improvement curve) re-
quired for a production run.  Used interchangeably with the
term "improvement curve," the concept of a learner's curve
was adopted from the observation that individuals who perform
repetitive tasks exhibit a rate of improvement due to
increased manual dexterity.
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LEVEL OF EFFORT;  The devotion of talent or capability to
a predetermined level of activity, over a stated period of
time, on the basis of a fixed-price or cost-reimbursement
pricing arrangement.  Payment is usually based on effort
expended rather than on results achieved.

MARKETPLACE;  The commercial world; the realm of business,
trade and economics; the environment in which buyers and
sellers bargain to achieve their separate and mutual ends.

OVERHEAD;  (See Indirect Cost.)

PRICE;  A monetrary amount given, received or asked in
exchange for property or services, expressed in terms of a
single item or unit of measure for such property or services.

PRICE ANALYSIS;  The process of examining and evaluating a
prospective price without evaluation of the separate cost
elements and proposed profit of the individual offeror whose
price is being evaluated.  It may be accomplished by a
comparison of submitted quotations, a comparison of price
quotations and contract prices with current quotations for .
the same or similar items, the use of rough yardsticks
(dollars per pound, for instance), or a comparison of pro-
posed prices with independently developed Government
estimates.

PRICING:  The process of establishing the amount or amounts
to be received or paid in return for providing goods and/or
performing services.

PRICING ARRANGEMENT;  An agreed-to basis between contractual
parties for the payment of amounts for specified performance.
Usually expressed in terms of a specific cost-reimbursement
or fixed-price type arrangement.

PROFIT;   Generally characterized as the basic motive of
business enterprise; on occasion referred to as "the wages
of risk."   In contract pricing, profit represents a projected
or known monetary excess realized by a producer or performer
after the deduction of cost (both direct and indirect)
incurred or to be incurred in the performance of a job,
task or series of the same.

PROFIT CENTER;  A discrete, organizationally independent
segment of a company, which has been charged by management
with profit and loss responsibilities.
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PROFIT OBJECTIVE;  That part of the estimated contract price
objective or values that the contracting officer concludes
is appropriate for the procurement at hand.  Where cost
analysis is undertaken, a profit objective should be
developed.  Developed, that is to say, after a thorough
review of proposed contract work and all available knowledge
regarding an offeror as well as an analysis of the offerer's
cost estimate, and a comparison of it with the Government's
estimate or projection of cost.

REASONABLE COST;  A cost is reasonable if, in its nature or
amount, it does not exceed what would be incurred by an
ordinarily prudent person in the conduct of competitive
business.

REQUEST FOR PROPOSALS;  A solicitation document used in
negotiated procurements.  When an RFP so states, the
Government reserves the right to award a contract based on
initial offers received without any written or oral
discussion with offerers.

REQUEST FOR QUOTATIONS;  A solicitation document used in
negotiated procurements.  An RFQ is a request for information.
Quotes submitted in response to it are not offers that the
Government may accept without some confirmation or discussion
with offerers.                                                 *^>

RETROACTIVE PRICING;  A pricing decision made after some or
all of the work specified under contract has been completed,
based on a review of contractor performance and recorded cost
data.

SAMPLING;  Method of obtaining statistics from a large body
of data without resorting to a complete census of the data.
Two broad methods of selecting samples are probability
sampling (in which sample units are selected according to
the law of chance) and nonprobability sampling {in which
personal choice, expert judgment or some other nonprobabilistic
rationale is used to select sample units).

SHOULD COST;  A concept of contract pricing that employs an
integrated team of Government procurement, contract administra-
tion, audit, and engineering representatives to conduct a
coordinated, in-depth cost analysis at the contractor's plant.
Its purpose: to identify uneconomical or inefficient practices
in the contractor's management and operations, to quantify
the findings in terms of their impact on cost, and to
develop a realistic price objective for negotiation that
reflects the outcome of the should-cost effort.
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(I
VALUE ANALYSIS:  A systematic and objective evaluation of
the function of a product and its related cost.  Its purpose
is to ensure optimum value.  As a pricing tool, it provides
insight into the inherent worth of a product.

VARIABLE COST;  A cost that changes with the rate of
production of goods or the performance of services.  As
distinguished from "fixed" costs (which do not change with
the rate of production or performance), there may be
"semivariable" costs (neither entirely fixed nor variable)
and "variable" costs as defined here.

VISUAL ANALYSIS;  The visual inspection of an item or its
drawings, from which a general estimate may be made about
probable value.  In most instances, visual analysis deals
with obvious, external features.

WEIGHTED GUIDELINES METHOD:  A technique of negotiated
procurement the Government uses to insure consideration of
the relative value of appropriate profit factors in estab-
lishing a profit objective and conducting negotiations.
Also used as a basis for documenting and explaining the
final pricing agreement reached between buyer and seller.
Appropriate profit factors include contractor's input to
total performance, contractor's assumption of contract cost
risk, record of contractor's performance, selected factors
(such as source of resources) and any special profit
consideration.
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II-  ACQUISITION PROCESS






     1.  Definitions



     2.  Regulatory Requirements for Cost Analysis



     3.  Definition of Cost Analysis, Cost or Pricing Data and



         Price Analysis



     4.  Certified Cost or Pricing Data



              a.  Vhen Required



              b.  Certificate of Cost or Pricing Data



              c.  Exemptions



     5.  Responsibilities of the Contracting Officer in the



         Pricing Decision



              a.  Price Analysis



              b.  Cost Analysis



              c.  Technical Analysis



     6.  Audit Requirements



     7.  Who Performs Cost and Price Analysis at EPA

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              II.  THE ACQUISITION PROCESS
ACQUISITION means the acquiring by contract, with appropriated
funds of supplies or services  (including construction) by
and for the use of the Federal Government through purchase
or lease, whether the supplies or services are already in
existence or must be created, developed, demonstrated, and
evaluated.  Acquisition begins at the point when agency needs
are established and includes the description of requirements
to satisfy agency needs, solicitation and selection of
sources, award of contracts, contract financing, contract
performance, contract adninistration, and those technical
and management functions directly related to the process of
fulfilling agency needs hy contract.

Contracting officers are the Government's agents in the
acquisition p-rocess.  They are responsible for assuring
compliance with the Federal Acquisition Regulation (FAR) in
fulfilling the Government's needs.

As part of this responsibility, contracting officers should
fulfill these needs at a reasonable cost.

It is this responsibility that the Cost Analysis Guide is
intended.  With cost or price as a consideration, this
section will examine the FAR 15.8* section governing the .
negotiation of price.
*Federal Acquisition Circular 84-5, effective April 1, ].9ft5
 has been incorporated in this section.
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Regulatory Requirements for Cost Analysis [FAR 15.805-Kb) 3
When cost or pricing data are required,  the contracting
officer shall make a cost analysis to evaluate the reasonable-
ness of individual cost elements.

In addition, the contracting officer should make a price
analysis to ensure that the overall price offered is fair
and reasonable.

When cost or pricing data are not required, the contracting
officer shall make a price analysis to ensure that the overall
price offered is fair and reasonable.
Definitions of Cost Analysis,
Analysis [FAR 15.801]
Cost of Pricing Data and Price
"Cost Analysis" means the review and evaluation of the
separate cost elements and proposed profit of

     (a) offerer's or contractor's cost or pricing data,  and

     (b) the judgmental factors applied in projecting from
         the data to the estimated costs,  in order to form
         an opinion on the degree to which the proposed
         costs represent what the contract should cost,
         assuming reasonable economy and efficiency.

"Price analysis" means the process of examining and evalua-
ting a proposed price without evaluating its separate
cost elements and proposed profit.

"Cost or pricing data" means all facts as of the time of
price agreement that prudent buyers and sellers would reason-
ably expect to affect price negotiations significantly.  Cost
or pricing data are factual, not judgmental, and are  therefore
verifiable.  While they do not indicate the accuracy  of the
prospective contractor's judgment about estimated future costs
or projections, they do include the data forming the  basis
for that judgment.  Cost or pricing data are more than
historical accounting data; they are all the facts that can
be reasonably expected to contribute to the soundness of
estimates of future costs and to the validity of determinations
of costs already incurred.  They also include such factors as
(a) vendor quotations; (b) nonrecurring costs; (c) information
on changes in production methods and in production or
purchasing volume; (d) data supporting projections of business
                         II-2

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prospects and objectives and related operations costs;
(e) unit-cost .trends such as those associated with labor
efficiency; (f)  make-or-buy decisions (g)  estimated resources
to attain business goals; and (h)  information on management
decisions that could have a significant bearing on costs.
 'Field pricing support" means a
contractor's or
pricing support
subcontractor's
personnel [(See
review and evaluation of the
proposal by any or all field
15.805-5(a)(2)].
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When is Certified Cost or Pricing Data Required?  [FAR15.804-2

(a)(l)  Except as provided in 15.804-3, certified cost or
        pricing data are required before accomplishing any
        of the following actions:
        (i)  The award of any negotiated contract (except
             for unpriced actions such as letter contracts)
             expected to exceed $100,000.

       (ii)  The modification of any sealed bid or negotiated
             contract (whether or not cost or pricing data
             were initially required) when the modification
             involves a price adjustment expected to exceed
             $100,000.  (For example, a $30,000 modification
             resulting from a reduction of $70,000 and an
             increase of $40,000 is a pricing adjustment
             exceeding $100,000.) This requirement does not •
             apply when unrelated and separately priced
             changes for which costs or pricing data would
             not otherwise be required are included for
             administrative convenience in the same
             modification.

      (iii)  The award of a subcontract at any tier, if the
             contractor and each higher tier subcontractor
             have been required to furnish certified cost or
             pricing data, when the subcontract is expected
             to exceed $100,000.

       (iv)  The modification of any subcontract covered by
             subdivision (iii) above, when the price adjust-
             ment (see subdivision (ii) above) is expected
             to exceed $100,000.
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Is certified cost or pricing data required for actions over
$25,000 and not in excess of $100,000?  [FAR 15.804-2]
   (2)  If cost or pricing data are needed for pricing
        action over $25,000 and not in excess of $100,000,
        certified cost or pricing data may be obtained.
        There should be relatively few instances where
        certified cost or pricing data and inclusion of
        defective pricing clauses would be justified in
        awards between $25,000 and $100,000.   The amount of
        data required to be submitted should  be limited to
        that data necessary to allow the contracting officer
        to determine the reasonableness of the price.   When-
        ever certified costs or pricing data  are required
        for pricing actions of $100,000 or less, the contract-
        ing officer shall document the file to justify the
        requirement.  When awarding a contract of $25,000 or
        less, the contracting officer shall not require
        certified cost or pricing data.

        (b)  When certified cost or pricing data are
             required, the contracting officer shall require
             the contractor or prospective contractor to
             submit to the contracting officer (and to have
             any subcontractor or prospective subcontractor
             submit to the prime contractor or appropriate
             subcontractor tier) the following in support of
             any proposal:

             (1)   The cost or pricing data.

             (2)   A certificate of current cost or pricing
                  data,  in the format specified in 15.804-4,
                  certifying that to the best of its knowledge
                  and belief, the cost or pricing data were
                  accurate, complete, and current as of the
                  date of final agreement on  price.
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 Certificate of Current Cost or Pricing Data [FAR 15.804-4]     ^^

 (a)   When certified cost or pricing data are required
 under 15.804-2,  the contracting officer shall require the
 contractor to execute  a Certificate of Current Cost pf
 Pricing Data, shown below,  and shall include the executed
 certificate in the contract file.   The certificate states
 that the cost or pricing data are  accurate, complete, and
 current as of the date the  contractor and the Government
 agreed on a price.  Only one certificate shall he required;
 .the  contractor shall submit it as  soon as practical after
 price agreement is reached.


          CERTIFICATE OF CURRENT COST OR PRICING DATA


      This is to certify that, to the best of my knowledge and
 belief, the cost or pricing data (as defined in section
 15.801 of the Federal  Acquisition  Regulation (FAR) and
 required under FAR subsection 15.804-2 to the contracting
 officer or to the contracting officer's representative in
 support of ... ........... *  are accurate, complete, and current
 as of .......... **  This certification includes the cost of
 pricing data supporting any advance agreements and forward
 pricing rate agreements between the offeror and the Government
 that are part of the proposal.
 Firm

 Name

 Title

 nate of exec ut ion* *.*.
  * Identify the proposal,  quotation,  request for price
    adjustment,  or other submission involved, giving the
    appropriate identifying number (e.g.,  RFP No.).

 ** Insert the day, month,  and year when price negotiations
    were concluded and price agreement was reached.
***
    Insert the day,  month,  and year of signing,  which should
    be as close as practicable to the date when the price
    negotiations were concluded and the contract price was
    agreed to.

                      (End  of Certificate)
                          II-6

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why is the certificate of current cost and pricing required?


The certificate is required so that if the cost and pricing
data is subsequently found to be inaccurate, incomplete, or
noncurrent as of the effective date of the certificate, the
Government is entitled to an adjustment of the negotiated
price.
Is a certificate of current cost and pricing data an acceptable
substitute for current cost and pricing data?
No.  A certificate of cost or pricing data is not a substitute
for examining and analyzing the contractor's proposal.
Are there exemptions from or waiver of submission of certified
cost or pricing data?  [FAR 15.R04-3]
     (a)  General.  Except as provided in paragraphs (b)  and
          (c) below,  the contracting officer shall not require
          submission or certification of cost or pricing
          data when the contracting officer determines that
          prices are:

          (1)  Rased on adequate price competition (see
               paragraph (b)  below);

         •(2)  Based on established catalog or market prices
               of commercial  items sold in substantial
               quantities to  the general public (see
               paragraph (c)  below); or
          (3)   Set by law or regulation
               below) .
(see paragraph  (d)
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What is adequate price competition?  [FAR 15.804-3(5)1

Adequate price competition.

     (1)  Price competition exists if

          (i)  Offers are solicited;

         (ii)  Two or more responsible offerers that
               can satisfy the Government's requirements
               submit priced offers responsive to the
               solicitation's expressed requirement; and

        (iii)  These offerers compete independently for
               a contract to be awarded to the responsible
               offerer submitting the lowest evaluated
               price.

     (2)  If price competition exists, the contracting
          officer shall presume that it is adequate unless

          (i)  The solicitation is made under conditions
               that unreasonably deny to one or more
               known and qualified offerers an opportunity
               to compete;

         (ii)  The low offerer has such a decided advantage
               that it is practically immune from
               competition; or

        (iii)  There is a finding, supported by a statement
               of the facts and approved at a level above
               the contracting officer, that the lowest
               price is unreasonable.

     (3)  A price is "based on" adequate price competition
          if it results directly from price competition or
          if price analysis alone clearly demonstrates that
          the proposed price is reasonable in comparison
          with current or recent prices for the same or
          substantially the same items purchas'ed in
          comparable quantitities, terms, and conditions
          under contracts that resulted from adequate
          price competition.
I)
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Howcan you determine if a price is based on an established
catalog or market price?  FAR 15.804-3(c)}
Established catalog or market prices.  A proposal is exempt
from the requirement 'for submission of certified cost or
pricing data if the prices are, or are based on, established
catalog or established market prices of commercial items
sold in substantial quantities to the general public.  In
order to quality for this exemption,  the terms of the proposed
purchase,  such as quantity and delivery requirements, should .
be sufficiently similar to those of the commercial sales
that the catalog or market price will be fair and reasonable.

     (1)  "Established catalog prices" must be recorded
          in a form regularly maintained by the
          manufacturer or vendor.  This form may be a
          catalog,  price list, schedule, or other
          verifiable and established record.  The record
          must (i)  be published or otherwise available
          for customer inspection and (ii)  state current
          or last sales price to a significant number of
          buyers constituting the general public {see
          subparagraph (5) below).

     (2)  "Established market prices" are current prices
          that (i)  are in the course of ordinary and
          usual trade between buyers and sellers free
          to bargain and (ii) can be substantiated by
          data from sources independent of the manufacturer
          or vendor.

     (3)  "Commercial items"  are supplies or services
          regularly used for  other than Government purposes
          and sold  or traded  to the general public in
          the course or normal business operations.

     (4)  An item is "sold in substantial quantitites"
          only when the quantities regularly sold are
          sufficient to constitute a real commercial
          market.   Nominal quantities,  such as models,
          samples,  prototypes, or experimental units, do
          not meet  this requirement.   For services to be
          sold in substantial quantities,  they must  be.
          customarily provided by the offerer,  using
          personnel regularly employed and  equipment (if
          any is necessary) regularly maintained solely or
          principally to provide the  services.
                          II-9

-------
(5)   The "general public" is a significant number of
     buyers  other than the Government or affiliates
     of the  offerer;  the item involved must not be
     for Government end use.  For the purpose of this
     subsection 15.804-3, items acquired for
     "Government end use" include items acquired for
     foreign military sales.

(6)   A price is "based on" a catalog or market price
     only if the item being purchased is sufficiently
     similar to the catalog or market priced
     commercial item to ensure that any difference
     in prices can be identified and justified
     without resorting to cost analysis.

(7)   If an item is substantially similar to a
     commercial item for which there is an established
     catalog or market price at which substantial
     quantities are sold to the general public, but
     the price proposed is not based on this catalog
     or market price (see subparagraph (6) above), the
     contracting officer may, if doing so will result
    , in a fair and reasonable price, limit any
     requirement for costs or pricing data to those
     data that pertain to the differences between the
     items.   When the difference between the catalog
     or market price of an item or items and the
     proposed total contract price is $100,000 or
     more, the contracting officer shall require
     submission of certified cost or pricing data to
     identify and justify that difference unless an
     exemption or waiver is granted.

(8)   Even though there is an established catalog or
     market  price of commercial items sold in
     substantial quantities to the general public,
     the contracting officer may require costs or
     pricing data if (i) • the contracting officer
     makes a written finding that the price is not
     reasonable, including the facts upon which the
     finding is based, and (ii) the finding is
     approved at a level above the contracting
     officer.
                       11-10

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How do you receive an exemption?  FAR 15.804-3(e)1
Claiming and granting exemption.  To receive an exemption
under paragraph (c) or (d) above, the offeror must ordinarily
claim it on standard Form 1412, Claim for Exemption from
Submission of Certified Cost or Pricing Data, when the total
proposed amount exceeds $100,000 and more than one catalog
item for which an exemption is claimed exceeds $25,000.  When
an exemption is claimed for more than one item in a proposal,
a separate SF 1412 is equired for each such item exceeding
$25,000 except as otherwise provided in the solicitation.
The contracting officer may grant an exemption and need not
require the submission of SF 1412 when

     (1)  The Government has acted favorably on an
          exemption claim for the same item or similar
          items within the past year.  In that case,
        .  except as otherwise directed by the contracting
          officer, the offeror may furnish a copy of
          the prior claim and related Government action.
          The offeror must also submit a statement to
          the effect that to its knowledge since the
          prior submission, except as expressly set
          forth in the statement, there have been no
          changes in the catalog price or discounts,
          volume of actual sales, or the ratio of sales
          for Government end use to sales in other
          categories which would cause a cumulative
          change in price exceeding 525,000?

     (2>  Special arrangements for the submission of
          exemption claims have been made in anticipa-
          tion of repetitive acquisitions of catalog
          items?

     (3)  There is evidence, before solicitation, that
          the item has an acceptable established catalog
          or market price or a price set by law or
          regulation.   Evidence may include (i) recent
          submissions by offerers or (ii) the contract
          officer's knowledge or market conditions,
          prevailing prices, or sources.
                            11-11

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I
             53J01-U12
FEDERAL ACQUISITION REGULATION -TAR)
• 	 ' 	 	 ^
CLAIM FOB EXEMPTION FROM SUBMISSION OF CERTIFIED COST OR PRICING DATA j X90-0m
i. OF 7CROO f?»*M. etaim iff CaOfi
1. blvlSiOniil A»O kOCATlON(S) WMCRC MO«K U TO at PCRFOaMED
J. &wL.iCI ' ATlON NO.
4. ITEM O* Su^'-ieS A'-S.'JO i£ • viCEi TO SE * JBNI$«C-
*
Bv •ufimman of IPrt form •** of1*«Or claims «««r»*OTion from r«Qo>rarvi«na for mjentinino carv1^ I^f. ,> pricing Qau on me 3«s-l T*UT ^C >-O» C*fen«J >s
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(•• CAR 15 6O*-4I. Compivti Section I. n.or ill D»O«I « •ooliesaa.
SECTION 1- CATALOG PRICE tSvt tn,truct,on, fo> in~!•"* ••  n oititoa Brioi to avruni public
e. Otror »!•» 10 owwril Bublic
» _

SALES CATEGORY
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ANQ A^^t.lCAfti.C DISCOUNTS.
t. SALU »C«IOO CCvCACO
FROM TO
10. REMARKS
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11. LIST THREE SALES OF THE ITEV OFFERED
OATE



NO. OF UNITS SOLO PRICE/UNIT
4
, T
s
SECTION II - MARKET PRICE ISm Initnxnon, for itm 12 Of n>**rm.)

HCTION III - LAW OR REGULATION tS** Inrtrufttoni tor itwn 13 art imrm.)
	 •
REPRESENTTATION IM~ Siurrucneti fart*-, Ua«™~-~.l
fvquinvnvna 1or •jDmjRing o>rlifi«d CD«T or ariCJ<*9 O*tt T>^« orivror «lio niontotnu tfwt. fxC«Ct t» fund in an inKfT-wtt, • lik« c» a«t» o*
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is. SIGNATURE i&. OATC o^ suBfjssiQM
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(TAMOARO FORM 141: ue-*3i I
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- - -
             J3-1O*

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PART 53—FORMS
53.301-1412
INSTRUCTIONS TO OFFERORS SUBMITTING
CLAIM FOR EXEMPTION FRCfv SUBMISSION
OF CERTIFIED COST OR PRICING DATA
Item 7. Attach a copy of trie catalog, or the appropriate
pages covering price and published discounts, or a nate-
ment that the cataiog is on file in the buying office to
which this proposal is being made. Catalog price, is a
price that is included in a catalog, price list, schedule, or
other form that is regularly maintained by ih; .i.e. ._lac-
turer or vender, is eimer published or otherwise available
for inspection by customers, and states prices at which
sales are currently, or were last, made to a significant
number of buyers constituting the general public. To
justify a catalog price exemption for the Government
item, the catalog item must be identical or must be so
similar in material and design that any price difference or
its absence can be evaluated soiefy by price analysis (see
FAR 15.805-2). In the latter case, a statement must be
attached identifying the specific differences and explain-
ing, by price analysis of the differences, how the pro-
posed price is derived from the catalog price.

Item 8. This period should include the most recent regu-
lar monthly, quarterly, or other period for which sales
data are reasonably available and should extend back
only far enough to provide a total period representative
of average sates. You may also attach sales data for a
prior representative period if for any reason recent sales
are abnormal and the prior period is sufficiently recent
(not more than 2 years preceding) to support the pro-
posed price for the Government item. .In the latter case,
you must explain, by price analysis only, how the pro-
posed price is derived from the catalog sales for the prior
period. '

Item 9. (a) Include in Category A all sales of the catalog
item (a) directly to the U.S. Government and its instru-
mentalities and (b) for U.S. Government use (sales
directly to U.S. Government prime contractors,_or their
subcontractors or suppliers at any tier, for use as an end
item, or as part of an end item, by the U.S. Government).

(b) Include in Category B all sales of the catalog item
made strictly at the catalog price, less onty published dis-
counts, to the general public (i.e., catalog price sales
Other than those (i) to affiliates of the OffertM ot li'O in-
cluded in Category A (instruction 9(a)J.

(c) Include in Category C all sales to the general public
that were not mad* strictly at the catalog puce or that
w«re made at special discounts or discount rates not pub-
lished in the catalog.
Item 11. On line a. insert information on the lowest price
•t which Category B or C saies of the offered item was
made during the period, regardless of quantity.
On lines b. and c. insert saies information in f>«
fo!'owing manner.

a. Give the lowest price Category C sales of
comparac's quam>t:-es. if tr.sre were no sates
of comparaoie quantities, then give •

b. The lowest price Category C sales of quanti-
ties most nearly me quantity oeing offered.
If there were no sales of Category C, then
give

c. The lowest price Category B sales of com-
parable quantities. If in e were no sales o<
comparable quantities, then give

d. The lowest price Category B sales of quanti-
ties most nearly the quantity being offered.

Attach a complete exolanation (!) if you, dur-
ing the period covered, offered special dis-
counts not included in the catalog, or (ii) if the
price proposed is not the lowest price at which
a sale was made to any customer during that
period for like items and comparable quanti-
ties.

Item 12. Market price is a current price, established in the
usual and ordinary course of trade between buyers and
sellers free to bargain, that can be substantiated from
sources independent of the manufacturer or vendor.
There must be a sufficient number of commercial buyers
so that their purchases establish an ascertainable current
market price for the item or service. The nature of this
market should be described. To justify a market-price
exemption, the item or service being purchased must be
identical to'the commercial item or service or must be so ,
similar in material and design (for supplies) or in work
and facilities (for services) that any price difference or its
absence can be evaluated solely by price analysis (see
FAR 15.805-2). In the latter case, a statement must be
attached identifying the specific differences and explain-
ing, by price analysis of the differences, how the pro-
posed price ts derived from the market price.

Item 13. Identity the law or regulation establishing the
price offered. If the price is controlled under taw by
periodic ru'ings. reviews or similar actions of a govern-
mental body, attach a copy of the controlling document.
unless it was previously submitted to the contracting
office.