Subpart 15.4 - Contract Pricing

Parent topic: Part 15 - Contracting by Negotiation

15.400 Scope of subpart.

This subpart prescribes the cost and price negotiation policies and procedures for pricing negotiated

prime contracts (including subcontracts) and contract modifications, including modifications to

contracts awarded by sealed bidding.

15.401 Definitions.

As used in this subpartPrice means cost plus any fee or profit applicable to the contract type.

Subcontract (except as used in 15.407-2) also includes a transfer of commercial products or

commercial services between divisions, subsidiaries, or affiliates of a contractor or a subcontractor

(10 U.S.C. 3701(2) and 41 U.S.C.3501(a)(3)).

15.402 Pricing policy.

Contracting officers shall-

(a) Purchase supplies and services from responsible sources at fair and reasonable prices. In

establishing the reasonableness of the offered prices, the contracting officer-

(1) Shall obtain certified cost or pricing data when required by 15.403-4, along with data other than

certified cost or pricing data as necessary to establish a fair and reasonable price; or

(2) When certified cost or pricing data are not required by 15.403-4, shall obtain data other than

certified cost or pricing data as necessary to establish a fair and reasonable price, generally using

the following order of preference in determining the type of data required:

(i) No additional data from the offeror, if the price is based on adequate price competition, except as

provided by 15.403-3(b).

(ii) Data other than certified cost or pricing data such as-

(A) Data related to prices (e.g., established catalog or market prices, sales to non-governmental and

governmental entities), relying first on data available within the Government; second, on data

obtained from sources other than the offeror; and, if necessary, on data obtained from the offeror.

When obtaining data from the offeror is necessary, unless an exception under 15.403-1(b)(1) or (2)

applies, such data submitted by the offeror shall include, at a minimum, appropriate data on the

prices at which the same or similar items have been sold previously, adequate for evaluating the

reasonableness of the price.
(B) Cost data to the extent necessary for the contracting officer to determine a fair and reasonable

price.

(3) Obtain the type and quantity of data necessary to establish a fair and reasonable price, but not

more data than is necessary. Requesting unnecessary data can lead to increased proposal

preparation costs, generally extend acquisition lead time, and consume additional contractor and

Government resources. Use techniques such as, but not limited to, price analysis, cost analysis,

and/or cost realism analysis to establish a fair and reasonable price. If a fair and reasonable price

cannot be established by the contracting officer from the analyses of the data obtained or submitted

to date, the contracting officer shall require the submission of additional data sufficient for the

contracting officer to support the determination of the fair and reasonable price.

(b) Price each contract separately and independently and not-

(1) Use proposed price reductions under other contracts as an evaluation factor; or

(2) Consider losses or profits realized or anticipated under other contracts.

(c) Not include in a contract price any amount for a specified contingency to the extent that the

contract provides for a price adjustment based upon the occurrence of that contingency.

15.403 Obtaining certified cost or pricing data.

15.403-1 Prohibition on obtaining certified cost or pricing data (10 U.S.C.

chapter 271 and 41 U.S.C. CHAPTER 35).

(a) Certified cost or pricing data shall not be obtained for acquisitions at or below the simplified

acquisition threshold.

(b) Exceptions to certified cost or pricing data requirements. The contracting officer shall not

require certified cost or pricing data to support any action (contracts, subcontracts, or

modifications) (but may require data other than certified cost or pricing data as defined in FAR

2.101 to support a determination of a fair and reasonable price or cost realism)—

(1) When the contracting officer determines that prices agreed upon are based on adequate price

competition (see standards in paragraph (c)(1) of this subsection);

(2) When the contracting officer determines that prices agreed upon are based on prices set by law

or regulation (see standards in paragraph (c)(2) of this subsection);

(3) When a commercial product or commercial service is being acquired (see standards in paragraph

(c)(3) of this subsection);

(4) When a waiver has been granted (see standards in paragraph (c)(4) of this subsection); or

(5) When modifying a contract or subcontract for commercial products or commercial services (see

standards in paragraph (c)(3) of this section).

(c) Standards for exceptions from certified cost or pricing data requirements—
(1) Adequate price competition.

(i) A price is based on adequate price competition when—

(A) Two or more responsible offerors, competing independently, submit priced offers that satisfy the

Government’s expressed requirement;

(B) Award will be made to the offeror whose proposal represents the best value (see 2.101) where

price is a substantial factor in source selection; and

(C) There is no finding that the price of the otherwise successful offeror is unreasonable. Any

finding that the price is unreasonable must be supported by a statement of the facts and approved at

a level above the contracting officer.

(ii) For agencies other than DoD, NASA, and the Coast Guard, a price is also based on adequate

price competition when–

(A) There was a reasonable expectation, based on market research or other assessment, that two or

more responsible offerors, competing independently, would submit priced offers in response to the

solicitation's expressed requirement, even though only one offer is received from a responsible

offeror and if-

(1) Based on the offer received, the contracting officer can reasonably conclude that the offer was

submitted with the expectation of competition, e.g., circumstances indicate that–

(i) The offeror believed that at least one other offeror was capable of submitting a meaningful offer;

and

(ii) The offeror had no reason to believe that other potential offerors did not intend to submit an

offer; and

(2) The determination that the proposed price is based on adequate price competition and is

reasonable has been approved at a level above the contracting officer; or

(B) Price analysis clearly demonstrates that the proposed price is reasonable in comparison with

current or recent prices for the same or similar items, adjusted to reflect changes in market

conditions, economic conditions, quantities, or terms and conditions under contracts that resulted

from adequate price competition.

(2) Prices set by law or regulation. Pronouncements in the form of periodic rulings, reviews, or

similar actions of a governmental body, or embodied in the laws, are sufficient to set a price.

(3) Commercial products and commercial services.

(i) Any acquisition that the contracting officer determines meets the commercial product or

commercial service definition in 2.101, or any modification, as defined in paragraph (3)(i) of the

commercial product definition, that does not change a commercial product to other than

commercial, is exempt from the requirement for certified cost or pricing data. If the contracting

officer determines that a product or service claimed to be commercial is not, and that no other

exception or waiver applies (e.g., the acquisition is not based on adequate price competition; the

acquisition is not based on prices set by law or regulation; and the acquisition exceeds the threshold

for the submission of certified cost or pricing data at 15.403-4(a)(1)) the contracting officer shall
require submission of certified cost or pricing data.

(ii) In accordance with section 41 U.S.C. 3501:

(A) When purchasing services that are not offered and sold competitively in substantial quantities in

the commercial marketplace, but are of a type offered and sold competitively in substantial

quantities in the commercial marketplace, they may be considered commercial services (thus

meeting the purpose of 41 U.S.C.chapter 35 and 10 U.S.C. chapter 271 for truth in negotiations)

only if the contracting officer determines in writing that the offeror has submitted sufficient

information to evaluate, through price analysis, the reasonableness of the price of such services.

(B) In order to make this determination, the contracting officer may request the offeror to submit

prices paid for the same or similar commercial services under comparable terms and conditions by

both Government and commercial customers; and

(C) If the contracting officer determines that the information described in paragraph (c)(3)(ii)(B) of

this section is not sufficient to determine the reasonableness of price, other relevant information

regarding the basis for price or cost, including information on labor costs, material costs and

overhead rates may be requested.

(iii) The following requirements apply to minor modifications defined in paragraph (3)(ii) of the

definition of a commercial product at 2.101 that do not change the commercial product to other than

commercial:

(A) For acquisitions funded by any agency other than DoD, NASA, or Coast Guard, such

modifications of a commercial product are exempt from the requirement for submission of certified

cost or pricing data.

(B) For acquisitions funded by DoD, NASA, or Coast Guard, such modifications of a commercial

product are exempt from the requirement for submission of certified cost or pricing data provided

the total price of all such modifications under a particular contract action does not exceed the

greater of the threshold for obtaining certified cost or pricing data in 15.403-4 or 5 percent of the

total price of the contract at the time of contract award.

(C) For acquisitions funded by DoD, NASA, or Coast Guard such modifications of a commercial

product are not exempt from the requirement for submission of certified cost or pricing data on the

basis of the exemption provided for at 15.403-1(c)(3) if the total price of all such modifications under

a particular contract action exceeds the greater of the threshold for obtaining certified cost or

pricing data in 15.403-4 or 5 percent of the total price of the contract at the time of contract award.

(iv) Any acquisition for other than commercial products or services treated as commercial products

or commercial services at 12.102(f)(1), except sole source contracts greater than $20 million, is

exempt from the requirements for certified cost or pricing data (41 U.S.C.1903).

(4) Waivers. The head of the contracting activity (HCA) may, without power of delegation, waive the

requirement for submission of certified cost or pricing data in exceptional cases. The authorization

for the waiver and the supporting rationale shall be in writing. The HCA may consider waiving the

requirement if the price can be determined to be fair and reasonable without submission of certified

cost or pricing data. For example, if certified cost or pricing data were furnished on previous

production buys and the contracting officer determines such data are sufficient, when combined

with updated data, a waiver may be granted. If the HCA has waived the requirement for submission

of certified cost or pricing data, the contractor or higher-tier subcontractor to whom the waiver

relates shall be considered as having been required to provide certified cost or pricing data.
Consequently, award of any lower-tier subcontract expected to exceed the certified cost or pricing

data threshold requires the submission of certified cost or pricing data unless-

(i) An exception otherwise applies to the subcontract; or

(ii) The waiver specifically includes the subcontract and the rationale supporting the waiver for that

subcontract.

15.403-2 Other circumstances where certified cost or pricing data are not

required.

(a) The exercise of an option at the price established at contract award or initial negotiation does not

require submission of certified cost or pricing data.

(b) Certified cost or pricing data are not required for proposals used solely for overrun funding or

interim billing price adjustments.

15.403-3 Requiring data other than certified cost or pricing data.

(a)

(1) In those acquisitions that do not require certified cost or pricing data, the contracting officer

shall—

(i) Obtain whatever data are available from Government or other secondary sources and use that

data in determining a fair and reasonable price;

(ii) Require submission of data other than certified cost or pricing data, as defined in 2.101, from the

offeror to the extent necessary to determine a fair and reasonable price (10 U.S.C. 3705(a) and

41 U.S.C.3505(a)) if the contracting officer determines that adequate data from sources other than

the offeror are not available. This includes requiring data from an offeror to support a cost realism

analysis;

(iii) Consider whether cost data are necessary to determine a fair and reasonable price when there is

not adequate price competition;

(iv) Require that the data submitted by the offeror include, at a minimum, appropriate data on the

prices at which the same item or similar items have previously been sold, adequate for determining

the reasonableness of the price unless an exception under 15.403-1(b)(1) or (2) applies; and

(v) Consider the guidance in section 3.3, chapter 3, volume I, of the Contract Pricing Reference

Guide cited at 15.404-1(a)(7) to determine the data an offeror shall be required to submit.

(2) The contractor’s format for submitting the data should be used (see 15.403-5(b)(2)).

(3) The contracting officer shall ensure that data used to support price negotiations are sufficiently

current to permit negotiation of a fair and reasonable price. Requests for updated offeror data

should be limited to data that affect the adequacy of the proposal for negotiations, such as changes

in price lists.
(4) As specified in section 808 of the Strom Thurmond National Defense Authorization Act for Fiscal

Year 1999 (Pub. L. 105-261), an offeror who does not comply with a requirement to submit data for a

contract or subcontract in accordance with paragraph (a)(1) of this subsection is ineligible for award

unless the HCA determines that it is in the best interest of the Government to make the award to

that offeror, based on consideration of the following:

(i) The effort made to obtain the data.

(ii) The need for the item or service.

(iii) Increased cost or significant harm to the Government if award is not made.

(b) Adequate price competition. When adequate price competition exists (see 15.403-1(c)(1)),

generally no additional data are necessary to determine the reasonableness of price. However, if

there are unusual circumstances where it is concluded that additional data are necessary to

determine the reasonableness of price, the contracting officer shall, to the maximum extent

practicable, obtain the additional data from sources other than the offeror. In addition, the

contracting officer should request data to determine the cost realism of competing offers or to

evaluate competing approaches.

(c) Commercial products and commercial services.

(1) At a minimum, the contracting officer must use price analysis to determine whether the price is

fair and reasonable whenever the contracting officer acquires a commercial product or commercial

service (see 15.404-1(b)). The fact that a price is included in a catalog does not, in and of itself,

make it fair and reasonable. If the contracting officer cannot determine whether an offered price is

fair and reasonable, even after obtaining additional data from sources other than the offeror, then

the contracting officer shall require the offeror to submit data other than certified cost or pricing

data to support further analysis (see 15.404-1). This data may include history of sales to nongovernmental and governmental entities, cost data, or any other information the contracting officer

requires to determine the price is fair and reasonable. Unless an exception under 15.403-1(b)(1) or

(2) applies, the contracting officer shall require that the data submitted by the offeror include, at a

minimum, appropriate data on the prices at which the same item or similar items have previously

been sold, adequate for determining the reasonableness of the price.

(2) Limitations relating to commercial products or commercial services 10 U.S.C. 3705(b) and 41

U.S.C. 3505(b)).

(i) The contracting officer shall limit requests for sales data relating to commercial products or

commercial services to data for the same or similar items during a relevant time period.

(ii) The contracting officer shall, to the maximum extent practicable, limit the scope of the request

for data relating to commercial products or commercial services to include only data that are in the

form regularly maintained by the offeror as part of its commercial operations.

(iii) The Government shall not disclose outside the Government data obtained relating to commercial

products or commercial services that is exempt from disclosure under 24.202(a) or the Freedom of

Information Act (5 U.S.C.552(b)).

(3) For services that are not offered and sold competitively in substantial quantities in the

commercial marketplace, but are of a type offered and sold competitively in substantial quantities in
the commercial marketplace, see 15.403-1(c)(3)(ii).

15.403-4 Requiring certified cost or pricing data (10 U.S.C. chapter 271 and

41 U.S.C. chapter 35).

(a)

(1) The contracting officer shall obtain certified cost or pricing data only if the contracting officer

concludes that none of the exceptions in 15.403-1(b) applies. However, if the contracting officer has

reason to believe exceptional circumstances exist and has sufficient data available to determine a

fair and reasonable price, then the contracting officer should consider requesting a waiver under the

exception at 15.403-1(b)(4). The threshold for obtaining certified cost or pricing data is $750,000 for

prime contracts awarded before July 1, 2018, and $2 million for prime contracts awarded on or after

July 1, 2018.When a clause refers to this threshold, and if the threshold is adjusted for inflation

pursuant to 1.109(a), then pursuant to 1.109(d) the changed threshold applies throughout the

remaining term of the contract, unless there is a subsequent threshold adjustment. Unless an

exception applies, certified cost or pricing data are required before accomplishing any of the

following actions expected to exceed the current threshold or, in the case of existing contracts, the

threshold specified in the contract:

(i) The award of any negotiated contract (except for undefinitized actions such as letter contracts).

(ii) The award of a subcontract at any tier, if the contractor and each higher-tier subcontractor were

required to furnish certified cost or pricing data (but see waivers at 15.403-1(c)(4)).

(iii) The modification of any sealed bid or negotiated contract (whether or not certified cost or

pricing data were initially required) or any subcontract covered by paragraph (a)(1)(ii) of this

subsection. Price adjustment amounts must consider both increases and decreases (e.g., a $500,000

modification resulting from a reduction of $1,500,000 and an increase of $1,000,000 is a $2,500,000

pricing adjustment exceeding the $2,000,000 threshold). This requirement does not apply when

unrelated and separately priced changes for which certified cost or pricing data would not otherwise

be required are included for administrative convenience in the same modification. Negotiated final

pricing actions (such as termination settlements and total final price agreements for fixed-price

incentive and redeterminable contracts) are contract modifications requiring certified cost or pricing

data if-

(A) The total final price agreement for such settlements or agreements exceeds the pertinent

threshold set forth at paragraph (a)(1) of this subsection; or

(B) The partial termination settlement plus the estimate to complete the continued portion of the

contract exceeds the pertinent threshold set forth at paragraph (a)(1) of this subsection (see

49.105(c)(15)).

(2) Unless prohibited because an exception at 15.403-1(b) applies, the head of the contracting

activity, without power of delegation, may authorize the contracting officer to obtain certified cost or

pricing data for pricing actions below the pertinent threshold in paragraph (a)(1) of this subsection,

provided the action exceeds the simplified acquisition threshold. The head of the contracting activity

shall justify the requirement for certified cost or pricing data. The documentation shall include a

written finding that certified cost or pricing data are necessary to determine whether the price is

fair and reasonable and the facts supporting that finding.
(3) Upon the request of a contractor that was required to submit certified cost or pricing data in

connection with a prime contract entered into before July 1, 2018, the contracting officer shall

modify the contract, without requiring consideration, to reflect a $2 million threshold for obtaining

certified cost or pricing data on subcontracts entered on and after July 1, 2018. See 15.408.

(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 certified cost or pricing data and data other than certified cost or pricing data required by

the contracting officer to determine that the price is fair and reasonable.

(2) A Certificate of Current Cost or Pricing Data, in the format specified in 15.406-2, 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 agreement on price or, if applicable, an earlier date agreed upon between the

parties that is as close as practicable to the date of agreement on price.

(c) If certified cost or pricing data are requested and submitted by an offeror, but an exception is

later found to apply, the data must not be considered certified cost or pricing data as defined in

2.101 and must not be certified in accordance with 15.406-2

(d) The requirements of this subsection also apply to contracts entered into by an agency on behalf

of a foreign government.

15.403-5 Instructions for submission of certified cost or pricing data and data

other than certified cost or pricing data.

(a) Taking into consideration the policy at 15.402, the contracting officer shall specify in the

solicitation (see 15.408(l) and (m))-

(1) Whether certified cost or pricing data are required;

(2) That, in lieu of submitting certified cost or pricing data, the offeror may submit a request for

exception from the requirement to submit certified cost or pricing data;

(3) Any requirement for data other than certified cost or pricing data; and

(4) The requirement for necessary preaward or postaward access to offeror’s records.

(b)

(1) Format for submission of certified cost or pricing data. When certification is required, the

contracting officer may require submission of certified cost or pricing data in the format indicated in

Table 15-2 of 15.408, specify an alternative format, or permit submission in the contractor’s format

(See 15.408(l)(1)), unless the data are required to be submitted on one of the termination forms

specified in subpart 49.6.

(2) Format for submission of data other than certified cost or pricing data. When required by the

contracting officer, data other than certified cost or pricing data may be submitted in the offeror’s
own format unless the contracting officer decides that use of a specific format is essential for

evaluating and determining that the price is fair and reasonable and the format has been described

in the solicitation.

(3) Format for submission of data supporting forward pricing rate agreements. Data supporting

forward pricing rate agreements or final indirect cost proposals shall be submitted in a form

acceptable to the contracting officer.

15.404 Proposal analysis.

15.404-1 Proposal analysis techniques.

(a) General. The objective of proposal analysis is to ensure that the final agreed-to price is fair and

reasonable.

(1) The contracting officer is responsible for evaluating the reasonableness of the offered prices. The

analytical techniques and procedures described in this subsection may be used, singly or in

combination with others, to ensure that the final price is fair and reasonable. The complexity and

circumstances of each acquisition should determine the level of detail of the analysis required.

(2) Price analysis shall be used when certified cost or pricing data are not required (see paragraph

(b) of this subsection and 15.404-3).

(3) Cost analysis shall be used to evaluate the reasonableness of individual cost elements when

certified cost or pricing data are required. Price analysis should be used to verify that the overall

price offered is fair and reasonable.

(4) Cost analysis may also be used to evaluate data other than certified cost or pricing data to

determine cost reasonableness or cost realism when a fair and reasonable price cannot be

determined through price analysis alone. 

(5) The contracting officer may request the advice and assistance of other experts to ensure that an

appropriate analysis is performed.

(6) Recommendations or conclusions regarding the Government’s review or analysis of an offeror’s

or contractor’s proposal shall not be disclosed to the offeror or contractor without the concurrence

of the contracting officer. Any discrepancy or mistake of fact (such as duplications, omissions, and

errors in computation) contained in the certified cost or pricing data or data other than certified cost

or pricing data submitted in support of a proposal shall be brought to the contracting officer’s

attention for appropriate action.

(7) The Air Force Institute of Technology (AFIT) and the Federal Acquisition Institute (FAI) jointly

prepared a five-volume set of Contract Pricing Reference Guides to guide pricing and negotiation

personnel. The five guides are: I Price Analysis, II Quantitative Techniques for Contract Pricing, III

Cost Analysis, IV Advanced Issues in Contract Pricing, and V Federal Contract Negotiation

Techniques. These references provide detailed discussion and examples applying pricing policies to

pricing problems. They are to be used for instruction and professional guidance. However, they are

not directive and should be considered informational only. They are available via the internet at

http://www.acq.osd.mil/dpap/cpic/cp/contract_pricing_reference_guides.html.
(b) Price analysis.

(1) Price analysis is the process of examining and evaluating a proposed price without evaluating its

separate cost elements and proposed profit. Unless an exception from the requirement to obtain

certified cost or pricing data applies under 15.403-1(b)(1) or (b)(2), at a minimum, the contracting

officer shall obtain appropriate data, without certification, on the prices at which the same or similar

items have previously been sold and determine if the data is adequate for evaluating the

reasonableness of the price. Price analysis may include evaluating data other than certified cost or

pricing data obtained from the offeror or contractor when there is no other means for determining a

fair and reasonable price. Contracting officers shall obtain data other than certified cost or pricing

data from the offeror or contractor for all acquisitions (including commercial acquisitions), if that is

the contracting officer’s only means to determine the price to be fair and reasonable.

(2) The Government may use various price analysis techniques and procedures to ensure a fair and

reasonable price. Examples of such techniques include, but are not limited to, the following:

(i) Comparison of proposed prices received in response to the solicitation. Normally, adequate price

competition establishes a fair and reasonable price (see 15.403-1(c)(1)).

(ii) Comparison of the proposed prices to historical prices paid, whether by the Government or other

than the Government, for the same or similar items. This method may be used for commercial

products or commercial services including those “of a type” or when requiring minor modifications

for commercial products.

(A) The prior price must be a valid basis for comparison. If there has been a significant time lapse

between the last acquisition and the present one, if the terms and conditions of the acquisition are

significantly different, or if the reasonableness of the prior price is uncertain, then the prior price

may not be a valid basis for comparison.

(B) The prior price must be adjusted to account for materially differing terms and conditions,

quantities and market and economic factors. For similar items, the contracting officer must also

adjust the prior price to account for material differences between the similar item and the item

being procured.

(C) Expert technical advice should be obtained when analyzing similar items, or commercial

products or commercial services that are “of a type”, or requiring minor modifications for

commercial products, to ascertain the magnitude of changes required and to assist in pricing the

required changes

(iii) Use of parametric estimating methods/application of rough yardsticks (such as dollars per pound

or per horsepower, or other units) to highlight significant inconsistencies that warrant additional

pricing inquiry.

(iv) Comparison with competitive published price lists, published market prices of commodities,

similar indexes, and discount or rebate arrangements.

(v) Comparison of proposed prices with independent Government cost estimates.

(vi) Comparison of proposed prices with prices obtained through market research for the same or

similar items.

(vii) Analysis of data other than certified cost or pricing data (as defined at 2.101) provided by the

offeror.
(3) The first two techniques at 15.404-1(b)(2) are the preferred techniques. However, if the

contracting officer determines that information on competitive proposed prices or previous contract

prices is not available or is insufficient to determine that the price is fair and reasonable, the

contracting officer may use any of the remaining techniques as appropriate to the circumstances

applicable to the acquisition.

(4) Value analysis can give insight into the relative worth of a product and the Government may use

it in conjunction with the price analysis techniques listed in paragraph (b)(2) of this section.

(c) Cost analysis.

(1) Cost analysis is the review and evaluation of any separate cost elements and profit or fee in an

offeror’s or contractor’s proposal, as needed to determine a fair and reasonable price or to

determine cost realism, and the application of judgment to determine how well the proposed costs

represent what the cost of the contract should be, assuming reasonable economy and efficiency.

(2) The Government may use various cost analysis techniques and procedures to ensure a fair and

reasonable price, given the circumstances of the acquisition. Such techniques and procedures

include the following:

(i) Verification of cost data or pricing data and evaluation of cost elements, including-

(A) The necessity for, and reasonableness of, proposed costs, including allowances for contingencies;

(B) Projection of the offeror’s cost trends, on the basis of current and historical cost or pricing data;

(C) Reasonableness of estimates generated by appropriately calibrated and validated parametric

models or cost-estimating relationships; and

(D) The application of audited or negotiated indirect cost rates, labor rates, and cost of money or

other factors.

(ii) Evaluating the effect of the offeror’s current practices on future costs. In conducting this

evaluation, the contracting officer shall ensure that the effects of inefficient or uneconomical past

practices are not projected into the future. In pricing production of recently developed complex

equipment, the contracting officer should perform a trend analysis of basic labor and materials, even

in periods of relative price stability.

(iii) Comparison of costs proposed by the offeror for individual cost elements with-

(A) Actual costs previously incurred by the same offeror;

(B) Previous cost estimates from the offeror or from other offerors for the same or similar items;

(C) Other cost estimates received in response to the Government’s request;

(D) Independent Government cost estimates by technical personnel; and

(E) Forecasts of planned expenditures.

(iv) Verification that the offeror's cost submissions are in accordance with the contract cost

principles and procedures in part 31 and, when applicable, the requirements and procedures in 48

CFR chapter 99, Cost Accounting Standards.
(v) Review to determine whether any cost data or pricing data, necessary to make the offeror’s

proposal suitable for negotiation, have not been either submitted or identified in writing by the

offeror. If there are such data, the contracting officer shall attempt to obtain and use them in the

negotiations or make satisfactory allowance for the incomplete data.

(vi) Analysis of the results of any make-or-buy program reviews, in evaluating subcontract costs (see

15.407-2).

(d) Cost realism analysis.

(1) Cost realism analysis is the process of independently reviewing and evaluating specific elements

of each offeror’s proposed cost estimate to determine whether the estimated proposed cost elements

are realistic for the work to be performed; reflect a clear understanding of the requirements; and

are consistent with the unique methods of performance and materials described in the offeror’s

technical proposal.

(2) Cost realism analyses shall be performed on cost-reimbursement contracts to determine the

probable cost of performance for each offeror.

(i) The probable cost may differ from the proposed cost and should reflect the Government’s best

estimate of the cost of any contract that is most likely to result from the offeror’s proposal. The

probable cost shall be used for purposes of evaluation to determine the best value.

(ii) The probable cost is determined by adjusting each offeror’s proposed cost, and fee when

appropriate, to reflect any additions or reductions in cost elements to realistic levels based on the

results of the cost realism analysis.

(3) Cost realism analyses may also be used on competitive fixed-price incentive contracts or, in

exceptional cases, on other competitive fixed-price-type contracts when new requirements may not

be fully understood by competing offerors, there are quality concerns, or past experience indicates

that contractors’ proposed costs have resulted in quality or service shortfalls. Results of the analysis

may be used in performance risk assessments and responsibility determinations. However, proposals

shall be evaluated using the criteria in the solicitation, and the offered prices shall not be adjusted

as a result of the analysis.

(e) Technical analysis.

(1) The contracting officer should request that personnel having specialized knowledge, skills,

experience, or capability in engineering, science, or management perform a technical analysis of the

proposed types and quantities of materials, labor, processes, special tooling, equipment or real

property, the reasonableness of scrap and spoilage, and other associated factors set forth in the

proposal(s) in order to determine the need for and reasonableness of the proposed resources,

assuming reasonable economy and efficiency.

(2) At a minimum, the technical analysis should examine the types and quantities of material

proposed and the need for the types and quantities of labor hours and the labor mix. Any other data

that may be pertinent to an assessment of the offeror’s ability to accomplish the technical

requirements or to the cost or price analysis of the service or product being proposed should also be

included in the analysis.

(3) The contracting officer should request technical assistance in evaluating pricing related to items
that are "similar to" items being purchased, or commercial products or commercial services that are

“of a type”, or requiring minor modifications for commercial products, to ascertain the magnitude of

changes required and to assist in pricing the required changes.

(f) Unit prices.

(1) Except when pricing an item on the basis of adequate price competition or catalog or market

price, unit prices shall reflect the intrinsic value of an item or service and shall be in proportion to

an item’s base cost (e.g., manufacturing or acquisition costs). Any method of distributing costs to

line items that distorts the unit prices shall not be used. For example, distributing costs equally

among line items is not acceptable except when there is little or no variation in base cost.

(2) Except for the acquisition of commercial products, contracting officers shall require that offerors

identify in their proposals those items of supply that they will not manufacture or to which they will

not contribute significant value, unless adequate price competition is expected (10 U.S.C.

3703(a)(1)(A) and 41 U.S.C.3503(a)(1)(A)). Such information shall be used to determine whether the

intrinsic value of an item has been distorted through application of overhead and whether such

items should be considered for breakout. The contracting officer should require such information in

all other negotiated contracts when appropriate.

(g) Unbalanced pricing.

(1) Unbalanced pricing may increase performance risk and could result in payment of unreasonably

high prices. Unbalanced pricing exists when, despite an acceptable total evaluated price, the price

of one or more line items is significantly over or understated as indicated by the application of cost

or price analysis techniques. The greatest risks associated with unbalanced pricing occur when-

(i) Startup work, mobilization, first articles, or first article testing are separate line items;

(ii) Base quantities and option quantities are separate line items; or

(iii) The evaluated price is the aggregate of estimated quantities to be ordered under separate line

items of an indefinite-delivery contract.

(2) All offers with separately priced line items or subline items shall be analyzed to determine if the

prices are unbalanced. If cost or price analysis techniques indicate that an offer is unbalanced, the

contracting officer shall-

(i) Consider the risks to the Government associated with the unbalanced pricing in determining the

competitive range and in making the source selection decision; and

(ii) Consider whether award of the contract will result in paying unreasonably high prices for

contract performance.

(3) An offer may be rejected if the contracting officer determines that the lack of balance poses an

unacceptable risk to the Government.

(h) Review and justification of pass-through contracts.

(1) The requirements of this paragraph (h) are applicable to all agencies. The requirements apply by

law to the Department of Defense, the Department of State, and the United States Agency for
International Development, per section 802 of the National Defense Authorization Act (NDAA) for

Fiscal Year 2013. The requirements apply as a matter of policy to other Federal agencies.

(2) Except as provided in paragraph (h)(3) of this section, when an offeror for a contract or a task or

delivery order informs the contracting officer pursuant to 52.215-22 that it intends to award

subcontracts for more than 70 percent of the total cost of work to be performed under the contract,

task or delivery order, the contracting officer shall–

(i) Consider the availability of alternative contract vehicles and the feasibility of contracting directly

with a subcontractor or subcontractors that will perform the bulk of the work. If such alternative

approaches are selected, any resulting solicitations shall be issued in accordance with the

competition requirements under FAR part 6;

(ii) Make a written determination that the contracting approach selected is in the best interest of the

Government; and

(iii) Document the basis for such determination.

(3) Contract actions awarded pursuant to subparts 19.5, 19.8, 19.13, 19.14, or 19.15 are exempt

from the requirements of this paragraph (h) (see section 1615 of the National Defense Authorization

Act for Fiscal Year 2014 (Pub. L. 113-66)).

15.404-2 Data to support proposal analysis.

(a) Field pricing assistance.

(1) The contracting officer should request field pricing assistance when the information available at

the buying activity is inadequate to determine a fair and reasonable price. The contracting officer

shall tailor requests to reflect the minimum essential supplementary information needed to conduct

a technical or cost or pricing analysis.

(2) The contracting officer shall tailor the type of information and level of detail requested in

accordance with the specialized resources available at the buying activity and the magnitude and

complexity of the required analysis. Field pricing assistance is generally available to provide-

(i) Technical, audit, and special reports associated with the cost elements of a proposal, including

subcontracts;

(ii) Information on related pricing practices and history;

(iii) Information to help contracting officers determine commerciality and a fair and reasonable

price, including-

(A) Verifying sales history to source documents;

(B) Identifying special terms and conditions;

(C) Identifying customarily granted or offered discounts for the item;

(D) Verifying the item to an existing catalog or price list;
(E) Verifying historical data for a product or service previously not determined commercial that the

offeror is now trying to qualify as a commercial product or commercial service; and

(F) Identifying general market conditions affecting determinations of commerciality and a fair and

reasonable price.

(iv) Information relative to the business, technical, production, or other capabilities and practices of

an offeror.

(3) When field pricing assistance is requested, contracting officers are encouraged to team with

appropriate field experts throughout the acquisition process, including negotiations. Early

communication with these experts will assist in determining the extent of assistance required, the

specific areas for which assistance is needed, a realistic review schedule, and the information

necessary to perform the review.

(4) When requesting field pricing assistance on a contractor’s request for equitable adjustment, the

contracting officer shall provide the information listed in 43.204(b)(5).

(5) Field pricing information and other reports may include proprietary or source selection

information (see 2.101). This information must be appropriately identified and protected

accordingly.

(b) Reporting field pricing information.

(1) Depending upon the extent and complexity of the field pricing review, results, including

supporting rationale, may be reported directly to the contracting officer orally, in writing, or by any

other method acceptable to the contracting officer.

(i) Whenever circumstances permit, the contracting officer and field pricing experts are encouraged

to use telephonic and/or electronic means to request and transmit pricing information.

(ii) When it is necessary to have written technical and audit reports, the contracting officer shall

request that the audit agency concurrently forward the audit report to the requesting contracting

officer and the administrative contracting officer (ACO). The completed field pricing assistance

results may reference audit information, but need not reconcile the audit recommendations and

technical recommendations. A copy of the information submitted to the contracting officer by field

pricing personnel shall be provided to the audit agency.

(2) Audit and field pricing information, whether written or reported telephonically or electronically,

shall be made a part of the official contract file (see 4.803(a)(19)).

(c) Audit assistance for prime contracts or subcontracts.

(1) The contracting officer should contact the cognizant audit office directly, particularly when an

audit is the only field pricing support required. The audit office shall send the audit report, or

otherwise transmit the audit recommendations, directly to the contracting officer.

(i) The auditor shall not reveal the audit conclusions or recommendations to the offeror/contractor

without obtaining the concurrence of the contracting officer. However, the auditor may discuss

statements of facts with the contractor.
(ii) The contracting officer should be notified immediately of any information disclosed to the auditor

after submission of a report that may significantly affect the audit findings and, if necessary, a

supplemental audit report shall be issued.

(2) The contracting officer shall not request a separate preaward audit of indirect costs unless the

information already available from an existing audit, completed within the preceding 12 months, is

considered inadequate for determining the reasonableness of the proposed indirect costs (41

U.S.C.4706 and 10 U.S.C. 3841).

(3) The auditor is responsible for the scope and depth of the audit. Copies of updated information

that will significantly affect the audit should be provided to the auditor by the contracting officer.

(4) General access to the offeror’s books and financial records is limited to the auditor. This

limitation does not preclude the contracting officer or the ACO, or their representatives, from

requesting that the offeror provide or make available any data or records necessary to analyze the

offeror’s proposal.

(d) Deficient proposals. The ACO or the auditor, as appropriate, shall notify the contracting officer

immediately if the data provided for review is so deficient as to preclude review or audit, or if the

contractor or offeror has denied access to any records considered essential to conduct a satisfactory

review or audit. Oral notifications shall be confirmed promptly in writing, including a description of

deficient or denied data or records. The contracting officer immediately shall take appropriate action

to obtain the required data. Should the offeror/contractor again refuse to provide adequate data, or

provide access to necessary data, the contracting officer shall withhold the award or price

adjustment and refer the contract action to a higher authority, providing details of the attempts

made to resolve the matter and a statement of the practicability of obtaining the supplies or services

from another source.

15.404-3 Subcontract pricing considerations.

(a) The contracting officer is responsible for the determination of a fair and reasonable price for the

prime contract, including subcontracting costs. The contracting officer should consider whether a

contractor or subcontractor has an approved purchasing system, has performed cost or price

analysis of proposed subcontractor prices, or has negotiated the subcontract prices before

negotiation of the prime contract, in determining the reasonableness of the prime contract price.

This does not relieve the contracting officer from the responsibility to analyze the contractor’s

submission, including subcontractor’s certified cost or pricing data.

(b) The prime contractor or subcontractor shall-

(1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed

subcontract prices;

(2) Include the results of these analyses in the price proposal; and

(3) When required by paragraph (c) of this subsection, submit subcontractor certified cost or pricing

data to the Government as part of its own certified cost or pricing data.

(c) Any contractor or subcontractor that is required to submit certified cost or pricing data also shall

obtain and analyze certified cost or pricing data before awarding any subcontract, purchase order,

or modification expected to exceed the certified cost or pricing data threshold, unless an exception
in 15.403-1(b) applies to that action.

(1) The contractor shall submit, or cause to be submitted by the subcontractor(s), certified cost or

pricing data to the Government for subcontracts that are the lower of either-

(i) $15 million or more; or

(ii) Both more than the pertinent certified cost or pricing data threshold and more than 10 percent of

the prime contractor’s proposed price, unless the contracting officer believes such submission is

unnecessary.

(2) The contracting officer should require the contractor or subcontractor to submit to the

Government (or cause submission of) subcontractor certified cost or pricing data below the

thresholds in paragraph (c)(1) of this subsection and data other than certified cost or pricing data

that the contracting officer considers necessary for adequately pricing the prime contract.

(3) Subcontractor certified cost or pricing data shall be submitted in the format provided in Table 

15-2 of 15.408 or the alternate format specified in the solicitation.

(4) Subcontractor certified cost or pricing data shall be current, accurate, and complete as of the

date of price agreement, or, if applicable, an earlier date agreed upon by the parties and specified

on the contractor’s Certificate of Current Cost or Pricing Data. The contractor shall update

subcontractor’s data, as appropriate, during source selection and negotiations.

(5) If there is more than one prospective subcontractor for any given work, the contractor need only

submit to the Government certified cost or pricing data for the prospective subcontractor most likely

to receive the award.

15.404-4 Profit.

(a) General. This subsection prescribes policies for establishing the profit or fee portion of the

Government prenegotiation objective in price negotiations based on cost analysis.

(1) Profit or fee prenegotiation objectives do not necessarily represent net income to contractors.

Rather, they represent that element of the potential total remuneration that contractors may receive

for contract performance over and above allowable costs. This potential remuneration element and

the Government’s estimate of allowable costs to be incurred in contract performance together equal

the Government’s total prenegotiation objective. Just as actual costs may vary from estimated costs,

the contractor’s actual realized profit or fee may vary from negotiated profit or fee, because of such

factors as efficiency of performance, incurrence of costs the Government does not recognize as

allowable, and the contract type.

(2) It is in the Government’s interest to offer contractors opportunities for financial rewards

sufficient to stimulate efficient contract performance, attract the best capabilities of qualified large

and small business concerns to Government contracts, and maintain a viable industrial base.

(3) Both the Government and contractors should be concerned with profit as a motivator of efficient

and effective contract performance. Negotiations aimed merely at reducing prices by reducing

profit, without proper recognition of the function of profit, are not in the Government’s interest.

Negotiation of extremely low profits, use of historical averages, or automatic application of

predetermined percentages to total estimated costs do not provide proper motivation for optimum
contract performance.

(b) Policy.

(1) Structured approaches (see paragraph (d) of this subsection) for determining profit or fee

prenegotiation objectives provide a discipline for ensuring that all relevant factors are considered.

Subject to the authorities in 1.301(c), agencies making noncompetitive contract awards over

$100,000 totaling $50 million or more ayear-

(i) Shall use a structured approach for determining the profit or fee objective in those acquisitions

that require cost analysis; and

(ii) May prescribe specific exemptions for situations in which mandatory use of a structured

approach would be clearly inappropriate.

(2) Agencies may use another agency’s structured approach.

(c) Contracting officer responsibilities.

(1) When the price negotiation is not based on cost analysis, contracting officers are not required to

analyze profit.

(2) When the price negotiation is based on cost analysis, contracting officers in agencies that have a

structured approach shall use it to analyze profit. When not using a structured approach,

contracting officers shall comply with paragraph (d)(1) of this subsection in developing profit or fee

prenegotiation objectives.

(3) Contracting officers shall use the Government prenegotiation cost objective amounts as the basis

for calculating the profit or fee prenegotiation objective. Before applying profit or fee factors, the

contracting officer shall exclude from the pre-negotiation cost objective amounts the purchase cost

of contractor-acquired property that is categorized as equipment, as defined in FAR 45.101, and

where such equipment is to be charged directly to the contract. Before applying profit or fee factors,

the contracting officer shall exclude any facilities capital cost of money included in the cost objective

amounts. If the prospective contractor fails to identify or propose facilities capital cost of money in a

proposal for a contract that will be subject to the cost principles for contracts with commercial

organizations (see subpart 31.2), facilities capital cost of money will not be an allowable cost in any

resulting contract (see 15.408(i)).

(4)

(i) The contracting officer shall not negotiate a price or fee that exceeds the following statutory

limitations, imposed by 10 U.S.C. 3322(b) and 41 U.S.C. 3905:

(A) For experimental, developmental, or research work performed under a cost-plus-fixed-fee

contract, the fee shall not exceed 15 percent of the contract’s estimated cost, excluding fee.

(B) For architect-engineer services for public works or utilities, the contract price or the estimated

cost and fee for production and delivery of designs, plans, drawings, and specifications shall not

exceed 6 percent of the estimated cost of construction of the public work or utility, excluding fees.

(C) For other cost-plus-fixed-fee contracts, the fee shall not exceed 10 percent of the contract’s
estimated cost, excluding fee.

(ii) The contracting officer’s signature on the price negotiation memorandum or other

documentation supporting determination of fair and reasonable price documents the contracting

officer’s determination that the statutory price or fee limitations have not been exceeded.

(5) The contracting officer shall not require any prospective contractor to submit breakouts or

supporting rationale for its profit or fee objective but may consider it, if it is submitted voluntarily.

(6) If a change or modification calls for essentially the same type and mix of work as the basic

contract and is of relatively small dollar value compared to the total contract value, the contracting

officer may use the basic contract’s profit or fee rate as the prenegotiation objective for that change

or modification.

(d) Profit-analysis factors-

(1) Common factors. Unless it is clearly inappropriate or not applicable, each factor outlined in

paragraphs (d)(1)(i) through (vi) of this subsection shall be considered by agencies in developing

their structured approaches and by contracting officers in analyzing profit, whether or not using a

structured approach.

(i) Contractor effort. This factor measures the complexity of the work and the resources required of

the prospective contractor for contract performance. Greater profit opportunity should be provided

under contracts requiring a high degree of professional and managerial skill and to prospective

contractors whose skills, facilities, and technical assets can be expected to lead to efficient and

economical contract performance. The subfactors in paragraphs (d)(1)(i)(A) through (D) of this

subsection shall be considered in determining contractor effort, but they may be modified in specific

situations to accommodate differences in the categories used by prospective contractors for listing

costs-

(A) Material acquisition. This subfactor measures the managerial and technical effort needed to

obtain the required purchased parts and material, subcontracted items, and special tooling.

Considerations include the complexity of the items required, the number of purchase orders and

subcontracts to be awarded and administered, whether established sources are available or new or

second sources must be developed, and whether material will be obtained through routine purchase

orders or through complex subcontracts requiring detailed specifications. Profit consideration

should correspond to the managerial and technical effort involved.

(B) Conversion direct labor. This subfactor measures the contribution of direct engineering,

manufacturing, and other labor to converting the raw materials, data, and subcontracted items into

the contract items. Considerations include the diversity of engineering, scientific, and manufacturing

labor skills required and the amount and quality of supervision and coordination needed to perform

the contract task.

(C) Conversion-related indirect costs. This subfactor measures how much the indirect costs

contribute to contract performance. The labor elements in the allocable indirect costs should be

given the profit consideration they would receive if treated as direct labor. The other elements of

indirect costs should be evaluated to determine whether they merit only limited profit consideration

because of their routine nature, or are elements that contribute significantly to the proposed

contract.

(D) General management. This subfactor measures the prospective contractor’s other indirect costs
and general and administrative (G&A) expense, their composition, and how much they contribute to

contract performance. Considerations include how labor in the overhead pools would be treated if it

were direct labor, whether elements within the pools are routine expenses or instead are elements

that contribute significantly to the proposed contract, and whether the elements require routine as

opposed to unusual managerial effort and attention.

(ii) Contract cost risk.

(A) This factor measures the degree of cost responsibility and associated risk that the prospective

contractor will assume as a result of the contract type contemplated and considering the reliability

of the cost estimate in relation to the complexity and duration of the contract task. Determination of

contract type should be closely related to the risks involved in timely, cost-effective, and efficient

performance. This factor should compensate contractors proportionately for assuming greater cost

risks.

(B) The contractor assumes the greatest cost risk in a closely priced firm-fixed-price contract under

which it agrees to perform a complex undertaking on time and at a predetermined price. Some firmfixed-price contracts may entail substantially less cost risk than others because, for example, the

contract task is less complex or many of the contractor’s costs are known at the time of price

agreement, in which case the risk factor should be reduced accordingly. The contractor assumes the

least cost risk in a cost-plus-fixed-fee level-of-effort contract, under which it is reimbursed those

costs determined to be allocable and allowable, plus the fixed fee.

(C) In evaluating assumption of cost risk, contracting officers shall, except in unusual circumstances,

treat time-and-materials, labor-hour, and firm-fixed-price, level-of-effort term contracts as cost-plusfixed-fee contracts.

(iii) Federal socioeconomic programs. This factor measures the degree of support given by the

prospective contractor to Federal socioeconomic programs, such as those involving small business

concerns, small business concerns owned and controlled by socially and economically disadvantaged

individuals, women-owned small business concerns, veteran-owned, HUBZone, service-disabled

veteran-owned small business concerns, sheltered workshops for workers with disabilities, and

energy conservation. Greater profit opportunity should be provided contractors that have displayed

unusual initiative in these programs.

(iv) Capital investments. This factor takes into account the contribution of contractor investments to

efficient and economical contract performance.

(v) Cost-control and other past accomplishments. This factor allows additional profit opportunities to

a prospective contractor that has previously demonstrated its ability to perform similar tasks

effectively and economically. In addition, consideration should be given to measures taken by the

prospective contractor that result in productivity improvements, and other cost-reduction

accomplishments that will benefit the Government in follow-on contracts.

(vi) Independent development. Under this factor, the contractor may be provided additional profit

opportunities in recognition of independent development efforts relevant to the contract end item

without Government assistance. The contracting officer should consider whether the development

cost was recovered directly or indirectly from Government sources.

(2) Additional factors. In order to foster achievement of program objectives, each agency may

include additional factors in its structured approach or take them into account in the profit analysis

of individual contract actions.
15.405 Price negotiation.

(a) The purpose of performing cost or price analysis is to develop a negotiation position that permits

the contracting officer and the offeror an opportunity to reach agreement on a fair and reasonable

price. A fair and reasonable price does not require that agreement be reached on every element of

cost, nor is it mandatory that the agreed price be within the contracting officer’s initial negotiation

position. Taking into consideration the advisory recommendations, reports of contributing

specialists, and the current status of the contractor’s purchasing system, the contracting officer is

responsible for exercising the requisite judgment needed to reach a negotiated settlement with the

offeror and is solely responsible for the final price agreement. However, when significant audit or

other specialist recommendations are not adopted, the contracting officer should provide rationale

that supports the negotiation result in the price negotiation documentation.

(b) The contracting officer’s primary concern is the overall price the Government will actually pay.

The contracting officer’s objective is to negotiate a contract of a type and with a price providing the

contractor the greatest incentive for efficient and economical performance. The negotiation of a

contract type and a price are related and should be considered together with the issues of risk and

uncertainty to the contractor and the Government. Therefore, the contracting officer should not

become preoccupied with any single element and should balance the contract type, cost, and profit

or fee negotiated to achieve a total result-a price that is fair and reasonable to both the Government

and the contractor.

(c) The Government’s cost objective and proposed pricing arrangement directly affect the profit or

fee objective. Because profit or fee is only one of several interrelated variables, the contracting

officer shall not agree on profit or fee without concurrent agreement on cost and type of contract.

(d) If, however, the contractor insists on a price or demands a profit or fee that the contracting

officer considers unreasonable, and the contracting officer has taken all authorized actions

(including determining the feasibility of developing an alternative source) without success, the

contracting officer shall refer the contract action to a level above the contracting officer. Disposition

of the action should be documented.

15.406 Documentation.

15.406-1 Prenegotiation objectives.

(a) The prenegotiation objectives establish the Government’s initial negotiation position. They assist

in the contracting officer’s determination of fair and reasonable price. They should be based on the

results of the contracting officer’s analysis of the offeror’s proposal, taking into consideration all

pertinent information including field pricing assistance, audit reports and technical analysis, factfinding results, independent Government cost estimates and price histories.

(b) The contracting officer shall establish prenegotiation objectives before the negotiation of any

pricing action. The scope and depth of the analysis supporting the objectives should be directly

related to the dollar value, importance, and complexity of the pricing action. When cost analysis is

required, the contracting officer shall document the pertinent issues to be negotiated, the cost

objectives, and a profit or fee objective.
15.406-2 Certificate of Current Cost or Pricing Data.

(a) When certified cost or pricing data are required, the contracting officer shall require the

contractor to execute a Certificate of Current Cost or Pricing Data, using the format in this

paragraph, and must include the executed certificate in the contract file.

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 2.101 of the Federal Acquisition Regulation (FAR) and required under FAR subsection

15.403-4) submitted, either actually or by specific identification in writing, 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 or pricing data supporting any advance

agreements and forward pricing rate agreements between the offeror and the Government that are

part of the proposal.

Firm _____________________________________________

Signature _________________________________________

Name ____________________________________________

Title _____________________________________________

Date of execution***________________________________

* Identify the proposal, 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 or, if applicable, an earlier date agreed upon between the parties that is as close as

practicable to the date of agreement on price.

***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)

(b) The certificate does not constitute a representation as to the accuracy of the contractor’s

judgment on the estimate of future costs or projections. It applies to the data upon which the

judgment or estimate was based. This distinction between fact and judgment should be clearly

understood. If the contractor had information reasonably available at the time of agreement showing

that the negotiated price was not based on accurate, complete, and current data, the contractor’s

responsibility is not limited by any lack of personal knowledge of the information on the part of its

negotiators.

(c) The contracting officer and contractor are encouraged to reach a prior agreement on criteria for

establishing closing or cutoff dates when appropriate in order to minimize delays associated with

proposal updates. Closing or cutoff dates should be included as part of the data submitted with the

proposal and, before agreement on price, data should be updated by the contractor to the latest

closing or cutoff dates for which the data are available. Use of cutoff dates coinciding with reports is

acceptable, as certain data may not be reasonably available before normal periodic closing dates
(e.g., actual indirect costs). Data within the contractor’s or a subcontractor’s organization on

matters significant to contractor management and to the Government will be treated as reasonably

available. What is significant depends upon the circumstances of each acquisition.

(d) Possession of a Certificate of Current Cost or Pricing Data is not a substitute for examining and

analyzing the contractor’s proposal.

(e) If certified cost or pricing data are requested by the Government and submitted by an offeror,

but an exception is later found to apply, the data shall not be considered certified cost or pricing

data and shall not be certified in accordance with this subsection.

15.406-3 Documenting the negotiation.

(a) The contracting officer shall document in the contract file the principal elements of the

negotiated agreement. The documentation (e.g., price negotiation memorandum (PNM)) shall

include the following:

(1) The purpose of the negotiation.

(2) A description of the acquisition, including appropriate identifying numbers (e.g., RFP No.).

(3) The name, position, and organization of each person representing the contractor and the

Government in the negotiation.

(4) The current status of any contractor systems (e.g., purchasing, estimating, accounting, and

compensation) to the extent they affected and were considered in the negotiation.

(5) If certified cost or pricing data were not required in the case of any price negotiation exceeding

the certified cost or pricing data threshold, the exception used and the basis for it.

(6) If certified cost or pricing data were required, the extent to which the contracting officer-

(i) Relied on the certified cost or pricing data submitted and used them in negotiating the price;

(ii) Recognized as inaccurate, incomplete, or noncurrent any certified cost or pricing data submitted;

the action taken by the contracting officer and the contractor as a result; and the effect of the

defective data on the price negotiated; or

(iii) Determined that an exception applied after the data were submitted and, therefore, considered

not to be certified cost or pricing data.

(7) A summary of the contractor’s proposal, any field pricing assistance recommendations, including

the reasons for any pertinent variances from them, the Government’s negotiation objective, and the

negotiated position. Where the determination of a fair and reasonable price is based on cost

analysis, the summary shall address each major cost element. When determination of a fair and

reasonable price is based on price analysis, the summary shall include the source and type of data

used to support the determination.

(8) The most significant facts or considerations controlling the establishment of the prenegotiation

objectives and the negotiated agreement including an explanation of any significant differences

between the two positions.
(9) To the extent such direction has a significant effect on the action, a discussion and quantification

of the impact of direction given by Congress, other agencies, and higher-level officials (i.e., officials

who would not normally exercise authority during the award and review process for the instant

contract action).

(10) The basis for the profit or fee prenegotiation objective and the profit or fee negotiated.

(11) Documentation of fair and reasonable pricing.

(b) Whenever field pricing assistance has been obtained, the contracting officer shall forward a copy

of the negotiation documentation to the office(s) providing assistance. When appropriate,

information on how advisory field support can be made more effective should be provided

separately.

15.407 Special cost or pricing areas.

15.407-1 Defective certified cost or pricing data.

(a) If, before agreement on price, the contracting officer learns that any certified cost or pricing data

submitted are inaccurate, incomplete, or noncurrent, the contracting officer shall immediately bring

the matter to the attention of the prospective contractor, whether the defective data increase or

decrease the contract price. The contracting officer shall consider any new data submitted to correct

the deficiency, or consider the inaccuracy, incompleteness, or noncurrency of the data when

negotiating the contract price. The price negotiation memorandum shall reflect the adjustments

made to the data or the corrected data used to negotiate the contract price.

(b)

(1) If, after award, certified cost or pricing data are found to be inaccurate, incomplete, or

noncurrent as of the date of final agreement on price or an earlier date agreed upon by the parties

given on the contractor's or subcontractor's Certificate of Current Cost or Pricing Data, the

Government is entitled to a price adjustment, including profit or fee, of any significant amount by

which the price was increased because of the defective data. This entitlement is ensured by

including in the contract one of the clauses prescribed in 15.408(b) and (c) and is set forth in the

clauses at 52.215-10, Price Reduction for Defective Certified Cost or Pricing Data, and 52.215-11,

Price Reduction for Defective Certified Cost or Pricing Data-Modifications. The clauses give the

Government the right to a price adjustment for defects in certified cost or pricing data submitted by

the contractor, a prospective subcontractor, or an actual subcontractor.

(2) In arriving at a price adjustment, the contracting officer shall consider the time by which the

certified cost or pricing data became reasonably available to the contractor, and the extent to which

the Government relied upon the defective data.

(3) The clauses referred to in paragraph (b)(1) of this subsection recognize that the Government’s

right to a price adjustment is not affected by any of the following circumstances:

(i) The contractor or subcontractor was a sole source supplier or otherwise was in a superior

bargaining position;
(ii) The contracting officer should have known that the certified cost or pricing data in issue were

defective even though the contractor or subcontractor took no affirmative action to bring the

character of the data to the attention of the contracting officer;

(iii) The contract was based on an agreement about the total cost of the contract and there was no

agreement about the cost of each item procured under such contract; or

(iv) Certified cost or pricing data were required; however, the contractor or subcontractor did not

submit a Certificate of Current Cost or Pricing Data relating to the contract.

(4) Subject to paragraphs (b)(5) and (6) of this subsection, the contracting officer shall allow an

offset for any understated certified cost or pricing data submitted in support of price negotiations,

up to the amount of the Government’s claim for overstated pricing data arising out of the same

pricing action (e.g., the initial pricing of the same contract or the pricing of the same change order).

(5) An offset shall be allowed only in an amount supported by the facts and if the contractor-

(i) Certifies to the contracting officer that, to the best of the contractor’s knowledge and belief, the

contractor is entitled to the offset in the amount requested; and

(ii) Proves that the certified cost or pricing data were available before the "as of" date specified on

the Certificate of Current Cost or Pricing Data but were not submitted. Such offsets need not be in

the same cost groupings (e.g., material, direct labor, or indirect costs).

(6) An offset shall not be allowed if-

(i) The understated data were known by the contractor to be understated before the "as of" date

specified on the Certificate of Current Cost or Pricing Data; or

(ii) The Government proves that the facts demonstrate that the price would not have increased in the

amount to be offset even if the available data had been submitted before the "as of" date specified on

the Certificate of Current Cost or Pricing Data.

(7)

(i) In addition to the price adjustment, the Government is entitled to recovery of any overpayment

plus interest on the overpayments. The Government is also entitled to penalty amounts on certain of

these overpayments. Overpayment occurs only when payment is made for supplies or services

accepted by the Government. Overpayments do not result from amounts paid for contract financing,

as defined in 32.001.

(ii) In calculating the interest amount due, the contracting officer shall-

(A) Determine the defective pricing amounts that have been overpaid to the contractor;

(B) Consider the date of each overpayment (the date of overpayment for this interest calculation

shall be the date payment was made for the related completed and accepted contract items; or for

subcontract defective pricing, the date payment was made to the prime contractor, based on prime

contract progress billings or deliveries, which included payments for a completed and accepted

subcontract item); and

(C) Apply the underpayment interest rate(s) in effect for each quarter from the time of overpayment
to the time of repayment, utilizing rate(s) prescribed by the Secretary of the Treasury under 26

U.S.C.6621(a)(2).

(iii) In arriving at the amount due for penalties on contracts where the submission of defective

certified cost or pricing data was a knowing submission, the contracting officer shall obtain an

amount equal to the amount of overpayment made. Before taking any contractual actions concerning

penalties, the contracting officer shall obtain the advice of counsel.

(iv) In the demand letter, the contracting officer shall separately include-

(A) The repayment amount;

(B) The penalty amount (if any);

(C) The interest amount through a specified date; and

(D) A statement that interest will continue to accrue until repayment is made.

(c) If, after award, the contracting officer learns or suspects that the data furnished were not

accurate, complete, and current, or were not adequately verified by the contractor as of the time of

negotiation, the contracting officer shall request an audit to evaluate the accuracy, completeness,

and currency of the data. The Government may evaluate the profit-cost relationships only if the audit

reveals that the data certified by the contractor were defective. The contracting officer shall not

reprice the contract solely because the profit was greater than forecast or because a contingency

specified in the submission failed to materialize.

(d) For each advisory audit received based on a postaward review that indicates defective pricing,

the contracting officer shall make a determination as to whether or not the data submitted were

defective and relied upon. Before making such a determination, the contracting officer should give

the contractor an opportunity to support the accuracy, completeness, and currency of the data in

question. The contracting officer shall prepare a memorandum documenting both the determination

and any corrective action taken as a result. The contracting officer shall send one copy of this

memorandum to the auditor and, if the contract has been assigned for administration, one copy to

the administrative contracting officer (ACO). A copy of the memorandum or other notice of the

contracting officer’s determination shall be provided to the contractor. When the contracting officer

determines that the contractor submitted defective cost or pricing data, the contracting officer, in

accordance with agency procedures, shall ensure that information relating to the contracting

officer’s final determination is reported in accordance with 42.1503(h). Agencies shall ensure

updated information that changes a contracting officer’s prior final determination is reported into

the FAPIIS module of Contractor Performance Assessment Reporting System (CPARS) in the event

of a—

(1) Contracting officer’s decision in accordance with the Contract Disputes statute;

(2) Board of Contract Appeals decision; or

(3) Court decision.

(e) If both the contractor and subcontractor submitted, and the contractor certified, or should have

certified, cost or pricing data, the Government has the right, under the clauses at 52.215-10, Price

Reduction for Defective Certified Cost or Pricing Data, and 52.215-11, Price Reduction for Defective

Certified Cost or Pricing Data-Modifications, to reduce the prime contract price if it was significantly

increased because a subcontractor submitted defective data. This right applies whether these data
supported subcontract cost estimates or supported firm agreements between subcontractor and

contractor.

(f) If Government audit discloses defective subcontractor certified cost or pricing data, the

information necessary to support a reduction in prime contract and subcontract prices may be

available only from the Government. To the extent necessary to secure a prime contract price

reduction, the contracting officer should make this information available to the prime contractor or

appropriate subcontractors, upon request. If release of the information would compromise

Government security or disclose trade secrets or confidential business information, the contracting

officer shall release it only under conditions that will protect it from improper disclosure.

Information made available under this paragraph shall be limited to that used as the basis for the

prime contract price reduction. In order to afford an opportunity for corrective action, the

contracting officer should give the prime contractor reasonable advance notice before determining

to reduce the prime contract price.

(1) When a prime contractor includes defective subcontract data in arriving at the price but later

awards the subcontract to a lower priced subcontractor (or does not subcontract for the work), any

adjustment in the prime contract price due to defective subcontract data is limited to the difference

(plus applicable indirect cost and profit markups) between the subcontract price used for pricing the

prime contract, and either the actual subcontract price or the actual cost to the contractor, if not

subcontracted, provided the data on which the actual subcontract price is based are not themselves

defective.

(2) Under cost-reimbursement contracts and under all fixed-price contracts except firm-fixed-price

contracts and fixed-price contracts with economic price adjustment, payments to subcontractors that

are higher than they would be had there been no defective subcontractor certified cost or pricing

data shall be the basis for disallowance or nonrecognition of costs under the clauses prescribed in

15.408(b) and (c). The Government has a continuing and direct financial interest in such payments

that is unaffected by the initial agreement on prime contract price.

15.407-2 Make-or-buy programs.

(a) General. The prime contractor is responsible for managing contract performance, including

planning, placing, and administering subcontracts as necessary to ensure the lowest overall cost and

technical risk to the Government. When make-or-buy programs are required, the Government may

reserve the right to review and agree on the contractor’s make-or-buy program when necessary to

ensure negotiation of reasonable contract prices, satisfactory performance, or implementation of

socioeconomic policies. Consent to subcontracts and review of contractors’ purchasing systems are

separate actions covered in part 44.

(b) Definition. "Make item," as used in this subsection, means an item or work effort to be produced

or performed by the prime contractor or its affiliates, subsidiaries, or divisions.

(c) Acquisitions requiring make-or-buy programs.

(1) Contracting officers may require prospective contractors to submit make-or-buy program plans

for negotiated acquisitions requiring certified cost or pricing data whose estimated value is $15

million or more, except when the proposed contract is for research or development and, if

prototypes or hardware are involved, no significant follow-on production is anticipated.
(2) Contracting officers may require prospective contractors to submit make-or-buy programs for

negotiated acquisitions whose estimated value is under $15 million only if the contracting officer-

(i) Determines that the information is necessary; and

(ii) Documents the reasons in the contract file.

(d) Solicitation requirements. When prospective contractors are required to submit proposed makeor-buy programs, the solicitation shall include-

(1) A statement that the program and required supporting information must accompany the offer;

and

(2) A description of factors to be used in evaluating the proposed program, such as capability,

capacity, availability of small, small disadvantaged, women-owned, veteran-owned, HUBZone, and

service-disabled veteran-owned small business concerns for subcontracting, establishment of new

facilities in or near labor surplus areas, delivery or performance schedules, control of technical and

schedule interfaces, proprietary processes, technical superiority or exclusiveness, and technical

risks involved.

(e) Program requirements. To support a make-or-buy program, the following information shall be

supplied by the contractor in its proposal:

(1) Items and work included. The information required from a contractor in a make-or-buy program

shall be confined to those major items or work efforts that normally would require company

management review of the make-or-buy decision because they are complex, costly, needed in large

quantities, or require additional equipment or real property to produce. Raw materials, commercial

products, commercial services (see 2.101), and off-the-shelf items (see 46.101) shall not be included,

unless their potential impact on contract cost or schedule is critical. Normally, make-or-buy

programs should not include items or work efforts estimated to cost less than 1 percent of the total

estimated contract price or any minimum dollar amount set by the agency.

(2) The offeror’s program should include or be supported by the following information:

(i) A description of each major item or work effort.

(ii) Categorization of each major item or work effort as "must make," "must buy," or "can either

make or buy."

(iii) For each item or work effort categorized as "can either make or buy," a proposal either to

"make" or to "buy."

(iv) Reasons for categorizing items and work efforts as "must make" or "must buy," and proposing to

"make" or to "buy" those categorized as "can either make or buy." The reasons must include the

consideration given to the evaluation factors described in the solicitation and must be in sufficient

detail to permit the contracting officer to evaluate the categorization or proposal.

(v) Designation of the plant or division proposed to make each item or perform each work effort, and

a statement as to whether the existing or proposed new facility is in or near a labor surplus area.

(vi) Identification of proposed subcontractors, if known, and their location and size status (also see

subpart 19.7 for subcontracting plan requirements).
(vii) Any recommendations to defer make-or-buy decisions when categorization of some items or

work efforts is impracticable at the time of submission.

(viii) Any other information the contracting officer requires in order to evaluate the program.

(f) Evaluation, negotiation, and agreement. Contracting officers shall evaluate and negotiate

proposed make-or-buy programs as soon as practicable after their receipt and before contract

award.

(1) When the program is to be incorporated in the contract and the design status of the product

being acquired does not permit accurate precontract identification of major items or work efforts,

the contracting officer shall notify the prospective contractor in writing that these items or efforts,

when identifiable, shall be added under the clause at 52.215-9, Changes or Additions to Make-or-Buy

Program.

(2) Contracting officers normally shall not agree to proposed "make items" when the products or

services are not regularly manufactured or provided by the contractor and are available-quality,

quantity, delivery, and other essential factors considered-from another firm at equal or lower prices,

or when they are regularly manufactured or provided by the contractor, but are available-quality,

quantity, delivery, and other essential factors considered-from another firm at lower prices.

However, the contracting officer may agree to these as "make items" if an overall lower

Governmentwide cost would result or it is otherwise in the best interest of the Government. If this

situation occurs in any fixed-price incentive or cost-plus-incentive-fee contract, the contracting

officer shall specify these items in the contract and state that they are subject to paragraph (d) of

the clause at 52.215-9, Changes or Additions to Make-or-Buy Program (see 15.408(a)). If the

contractor proposes to reverse the categorization of such items during contract performance, the

contract price shall be subject to equitable reduction.

(g) Incorporating make-or-buy programs in contracts. The contracting officer may incorporate the

make-or-buy program in negotiated contracts for-

(1) Major systems (see part 34) or their subsystems or components, regardless of contract type; or

(2) Other supplies and services if-

(i) The contract is a cost-reimbursable contract, or a cost-sharing contract in which the contractor’s

share of the cost is less than 25 percent; and

(ii) The contracting officer determines that technical or cost risks justify Government review and

approval of changes or additions to the make-or-buy program.

15.407-3 Forward pricing rate agreements.

(a) When certified cost or pricing data are required, offerors are required to describe any forward

pricing rate agreements (FPRAs) in each specific pricing proposal to which the rates apply and to

identify the latest cost or pricing data already submitted in accordance with the FPRA. All data

submitted in connection with the FPRA, updated as necessary, form a part of the total data that the

offeror certifies to be accurate, complete, and current at the time of agreement on price for an initial

contract or for a contract modification. (See the Certificate of Current Cost or Pricing Data at

15.406-2.)
(b) Contracting officers will use FPRA rates as bases for pricing all contracts, modifications, and

other contractual actions to be performed during the period covered by the agreement. Conditions

that may affect the agreement’s validity shall be reported promptly to the ACO. If the ACO

determines that a changed condition invalidates the agreement, the ACO shall notify all interested

parties of the extent of its effect and status of efforts to establish a revised FPRA.

(c) Contracting officers shall not require certification at the time of agreement for data supplied in

support of FPRA’s or other advance agreements. When a forward pricing rate agreement or other

advance agreement is used to price a contract action that requires a certificate, the certificate

supporting that contract action shall cover the data supplied to support the FPRA or other advance

agreement, and all other data supporting the action.

15.407-4 Should-cost review.

(a) General.

(1) Should-cost reviews are a specialized form of cost analysis. Should-cost reviews differ from

traditional evaluation methods because they do not assume that a contractor’s historical costs reflect

efficient and economical operation. Instead, these reviews evaluate the economy and efficiency of

the contractor’s existing work force, methods, materials, equipment, real property, operating

systems, and management. These reviews are accomplished by a multi-functional team of

Government contracting, contract administration, pricing, audit, and engineering representatives.

The objective of should-cost reviews is to promote both short and long-range improvements in the

contractor’s economy and efficiency in order to reduce the cost of performance of Government

contracts. In addition, by providing rationale for any recommendations and quantifying their impact

on cost, the Government will be better able to develop realistic objectives for negotiation.

(2) There are two types of should-cost reviews-program should-cost review (see paragraph (b) of this

subsection) and overhead should-cost review (see paragraph (c) of this subsection). These shouldcost reviews may be performed together or independently. The scope of a should-cost review can

range from a large-scale review examining the contractor’s entire operation (including plant-wide

overhead and selected major subcontractors) to a small-scale tailored review examining specific

portions of a contractor’s operation.

(b) Program should-cost review.

(1) A program should-cost review is used to evaluate significant elements of direct costs, such as

material and labor, and associated indirect costs, usually associated with the production of major

systems. When a program should-cost review is conducted relative to a contractor proposal, a

separate audit report on the proposal is required.

(2) A program should-cost review should be considered, particularly in the case of a major system

acquisition (see part 34), when-

(i) Some initial production has already taken place;

(ii) The contract will be awarded on a sole source basis;

(iii) There are future year production requirements for substantial quantities of like items;
(iv) The items being acquired have a history of increasing costs;

(v) The work is sufficiently defined to permit an effective analysis and major changes are unlikely;

(vi) Sufficient time is available to plan and adequately conduct the should-cost review; and

(vii) Personnel with the required skills are available or can be assigned for the duration of the

should-cost review.

(3) The contracting officer should decide which elements of the contractor’s operation have the

greatest potential for cost savings and assign the available personnel resources accordingly. The

expertise of on-site Government personnel should be used, when appropriate. While the particular

elements to be analyzed are a function of the contract work task, elements such as manufacturing,

pricing and accounting, management and organization, and subcontract and vendor management

are normally reviewed in a should-cost review.

(4) In acquisitions for which a program should-cost review is conducted, a separate program shouldcost review team report, prepared in accordance with agency procedures, is required. The

contracting officer shall consider the findings and recommendations contained in the program

should-cost review team report when negotiating the contract price. After completing the

negotiation, the contracting officer shall provide the ACO a report of any identified uneconomical or

inefficient practices, together with a report of correction or disposition agreements reached with the

contractor. The contracting officer shall establish a follow-up plan to monitor the correction of the

uneconomical or inefficient practices.

(5) When a program should-cost review is planned, the contracting officer should state this fact in

the acquisition plan or acquisition plan updates (see subpart 7.1) and in the solicitation.

(c) Overhead should-cost review.

(1) An overhead should- cost review is used to evaluate indirect costs, such as fringe benefits,

shipping and receiving, real property, and equipment, depreciation, plant maintenance and security,

taxes, and general and administrative activities. It is normally used to evaluate and negotiate an

FPRA with the contractor. When an overhead should-cost review is conducted, a separate audit

report is required.

(2) The following factors should be considered when selecting contractor sites for overhead shouldcost reviews:

(i) Dollar amount of Government business.

(ii) Level of Government participation.

(iii) Level of noncompetitive Government contracts.

(iv) Volume of proposal activity.

(v) Major system or program.

(vi) Corporate reorganizations, mergers, acquisitions, or takeovers.

(vii) Other conditions (e.g., changes in accounting systems, management, or business activity).
(3) The objective of the overhead should-cost review is to evaluate significant indirect cost elements

in-depth, and identify and recommend corrective actions regarding inefficient and uneconomical

practices. If it is conducted in conjunction with a program should-cost review, a separate overhead

should-cost review report is not required. However, the findings and recommendations of the

overhead should-cost team, or any separate overhead should-cost review report, shall be provided to

the ACO. The ACO should use this information to form the basis for the Government position in

negotiating an FPRA with the contractor. The ACO shall establish a follow-up plan to monitor the

correction of the uneconomical or inefficient practices.

15.407-5 Estimating systems.

(a) Using an acceptable estimating system for proposal preparation benefits both the Government

and the contractor by increasing the accuracy and reliability of individual proposals. Cognizant audit

activities, when it is appropriate to do so, shall establish and manage regular programs for reviewing

selected contractors’ estimating systems or methods, in order to reduce the scope of reviews to be

performed on individual proposals, expedite the negotiation process, and increase the reliability of

proposals. The results of estimating system reviews shall be documented in survey reports.

(b) The auditor shall send a copy of the estimating system survey report and a copy of the official

notice of corrective action required to each contracting office and contract administration office

having substantial business with that contractor. Significant deficiencies not corrected by the

contractor shall be a consideration in subsequent proposal analyses and negotiations.

15.408 Solicitation provisions and contract clauses.

(a) Changes or Additions to Make-or-Buy Program. The contracting officer shall insert the clause at

52.215-9, Changes or Additions to Make-or-Buy Program, in solicitations and contracts when it is

contemplated that a make-or-buy program will be incorporated in the contract. If a less economical

"make" or "buy" categorization is selected for one or more items of significant value, the contracting

officer shall use the clause with-

(1) Its Alternate I, if a fixed-price incentive contract is contemplated; or

(2) Its Alternate II, if a cost-plus-incentive-fee contract is contemplated.

(b) Price Reduction for Defective Certified Cost or Pricing Data. The contracting officer shall, when

contracting by negotiation, insert the clause at 52.215-10, Price Reduction for Defective Certified

Cost or Pricing Data, in solicitations and contracts when it is contemplated that certified cost or

pricing data will be required from the contractor or any subcontractor (see 15.403-4).

(c) Price Reduction for Defective Certified Cost or Pricing Data-Modifications. The contracting

officer shall, when contracting by negotiation, insert the clause at 52.215-11, Price Reduction for

Defective Certified Cost or Pricing Data—Modifications, in solicitations and contracts when it is

contemplated that certified cost or pricing data will be required from the contractor or any

subcontractor (see 15.403-4) for the pricing of contract modifications, and the clause prescribed in

paragraph (b) of this section has not been included.

(d) Subcontractor Certified Cost or Pricing Data. The contracting officer shall—
(1) Insert the clause at 52.215-12, Subcontractor Certified Cost or Pricing Data, in solicitations and

contracts when the clause prescribed in paragraph (b) of this section is included; or

(2) Upon the request of a contractor that was required to submit certified cost or pricing data in

connection with a prime contract entered into before July 1, 2018, the contracting officer shall

modify the contract without requiring consideration, to replace clause 52.215-12, Subcontractor

Certified Cost or Pricing Data, with its Alternate I.

(e) Subcontractor Certified Cost or Pricing Data-Modifications. The contracting officer shall—

(1) Insert the clause at 52.215-13, Subcontractor Certified Cost or Pricing Data—Modifications, in

solicitations and contracts when the clause prescribed in paragraph (c) of this section is included; or

(2) Upon the request of a contractor that was required to submit certified cost or pricing data in

connection with a prime contract entered into before July 1, 2018, the contracting officer shall

modify the contract without requiring consideration, to replace clause 52.215-13, Subcontractor

Certified Cost or Pricing Data—Modifications, with its Alternate I.

(f) Integrity of Unit Prices.

(1) The contracting officer shall insert the clause at 52.215-14, Integrity of Unit Prices, in

solicitations and contracts except for-

(i) Acquisitions at or below the simplified acquisition threshold;

(ii) Construction or architect-engineer services under part 36;

(iii) Utility services under part 41;

(iv) Service contracts where supplies are not required;

(v) Acquisitions of commercial products and commercial services; and

(vi) Contracts for petroleum products.

(2) The contracting officer shall insert the clause with its Alternate I when contracting without

adequate price competition or when prescribed by agency regulations.

(g) Pension Adjustments and Asset Reversions. The contracting officer shall insert the clause at

52.215-15, Pension Adjustments and Asset Reversions, in solicitations and contracts for which it is

anticipated that certified cost or pricing data will be required or for which any preaward or

postaward cost determinations will be subject to part 31.

(h) Facilities Capital Cost of Money. The contracting officer shall insert the provision at 52.215-16,

Facilities Capital Cost of Money, in solicitations expected to result in contracts that are subject to

the cost principles for contracts with commercial organizations (see subpart 31.2).

(i) Waiver of Facilities Capital Cost of Money. If the prospective contractor does not propose

facilities capital cost of money in its offer, the contracting officer shall insert the clause at

52.215-17, Waiver of Facilities Capital Cost of Money, in the resulting contract.

(j) Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other Than Pensions. The

contracting officer shall insert the clause at 52.215-18, Reversion or Adjustment of Plans for
Postretirement Benefits (PRB) Other Than Pensions, in solicitations and contracts for which it is

anticipated that certified cost or pricing data will be required or for which any preaward or

postaward cost determinations will be subject to part 31.

(k) Notification of Ownership Changes. The contracting officer shall insert the clause at 52.215-19,

Notification of Ownership Changes, in solicitations and contracts for which it is contemplated that

certified cost or pricing data will be required or for which any preaward or postaward cost

determination will be subject to subpart 31.2.

(l) Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing

Data. Considering the hierarchy at 15.402, the contracting officer shall insert the provision at

52.215-20, Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or

Pricing Data, in solicitations if it is reasonably certain that certified cost or pricing data or data other

than certified cost or pricing data will be required. This provision also provides instructions to

offerors on how to request an exception from the requirement to submit certified cost or pricing

data. The contracting officer shall-

(1) Use the provision with its Alternate I to specify a format for certified cost or pricing data other

than the format required by Table 15-2 of this section;

(2) Use the provision with its Alternate II if copies of the proposal are to be sent to the ACO and

contract auditor;

(3) Use the provision with its Alternate III if submission via electronic media is required; and

(4) Replace the basic provision with its Alternate IV if certified cost or pricing data are not expected

to be required because an exception may apply, but data other than certified cost or pricing data will

be required as described in 15.403-3.

(m) Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing

Data-Modifications. Considering the hierarchy at 15.402, the contracting officer shall insert the

clause at 52.215-21, Requirements for Certified Cost or Pricing Data and Data Other Than Certified

Cost or Pricing Data-Modifications, in solicitations and contracts if it is reasonably certain that

certified cost or pricing data or data other than certified cost or pricing data will be required for

modifications. This clause also provides instructions to contractors on how to request an exception

from the requirement to submit certified cost or pricing data. The contracting officer shall-

(1) Use the clause with its Alternate I to specify a format for certified cost or pricing data other than

the format required by Table 15-2 of this section;

(2) Use the clause with its Alternate II if copies of the proposal are to be sent to the ACO and

contract auditor;

(3) Use the clause with its Alternate III if submission via electronic media is required; and

(4) Replace the basic clause with its Alternate IV if certified cost or pricing data are not expected to

be required because an exception may apply, but data other than certified cost or pricing data will

be required as described in 15.403-3.

(n) Limitations on Pass-Through Charges.

(1) The contracting officer shall insert the provision at 52.215-22, Limitations on Pass-Through
Charges-Identification of Subcontract Effort, in solicitations containing the clause at 52.215-23.

(2)

(i) Except as provided in paragraph (n)(2)(ii), the contracting officer shall insert the clause

52.215-23, Limitations on Pass-Through Charges, in solicitations and contracts including task or

delivery orders as follows:

(A) For civilian agencies, insert the clause when-

(1) The total estimated contract or order value exceeds the simplified acquisition threshold as

defined in section 2.101 and

(2) The contemplated contract type is expected to be a cost-reimbursement type contract as defined

in subpart 16.3; or

(B) For DoD, insert the clause when-

(1) The total estimated contract or order value exceeds the threshold for obtaining cost or pricing

data in 15.403-4; and

(2) The contemplated contract type is expected to be any contract type except-

(i) A firm-fixed-price contract awarded on the basis of adequate price competition;

(ii) A fixed-price contract with economic price adjustment awarded on the basis of adequate price

competition;

(iii) A firm-fixed-price contract for the acquisition of a commercial product or commercial service;

(iv) A fixed-price contract with economic price adjustment, for the acquisition of a commercial

product or commercial service;

(v) A fixed-price incentive contract awarded on the basis of adequate price competition; or

(vi) A fixed-price incentive contract for the acquisition of a commercial product or commercial

service.

(ii) The clause may be used when the total estimated contract or order value is below the thresholds

identified in 15.408(n)(2)(i) and for any contract type, when the contracting officer determines that

inclusion of the clause is appropriate.

(iii) Use the clause 52.215-23 with its Alternate I when the contracting officer determines that the

prospective contractor has demonstrated that its functions provide added value to the contracting

effort and there are no excessive pass-through charges.

Table 15-2—Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data

Are Required

This document provides instructions for preparing a contract pricing proposal when certified cost or pricing data are required.
Note 1. There is a clear distinction between submitting certified cost or pricing data and merely making available books,

records, and other documents without identification. The requirement for submission of certified cost or pricing data is met

when all accurate certified cost or pricing data reasonably available to the offeror have been submitted, either actually or by

specific identification, to the Contracting Officer or an authorized representative. As later data come into your possession, it

should be submitted promptly to the Contracting Officer in a manner that clearly shows how the data relate to the offeror’s

price proposal. The requirement for submission of certified cost or pricing data continues up to the time of agreement on price,

or an earlier date agreed upon between the parties if applicable.

Note 2. By submitting your proposal, you grant the Contracting Officer or an authorized representative the right to examine

records that formed the basis for the pricing proposal. That examination can take place at any time before award. It may

include those books, records, documents, and other types of factual data (regardless of form or whether the data are

specifically referenced or included in the proposal as the basis for pricing) that will permit an adequate evaluation of the

proposed price.

I. General Instructions

A. You must provide the following information on the first page of your pricing proposal:

(1) Solicitation, contract, and/or modification number;

(2) Name and address of offeror;

(3) Name and telephone number of point of contact;

(4) Name of contract administration office (if available);

(5) Type of contract action (that is, new contract, change order, price revision/redetermination, letter contract, unpriced order,

or other);

(6) Proposed cost; profit or fee; and total;

(7) Whether you will require the use of Government property in the performance of the contract, and, if so, what property;

(8) Whether your organization is subject to cost accounting standards; whether your organization has submitted a CASB

Disclosure Statement, and if it has been determined adequate; whether you have been notified that you are or may be in

noncompliance with your Disclosure Statement or CAS (other than a noncompliance that the cognizant Federal agency official

has determined to have an immaterial cost impact), and, if yes, an explanation; whether any aspect of this proposal is

inconsistent with your disclosed practices or applicable CAS, and, if so, an explanation; and whether the proposal is consistent

with your established estimating and accounting principles and procedures and FAR part 31, Cost Principles, and, if not, an

explanation;

(9) The following statement: This proposal reflects our estimates and/or actual costs as of this date and conforms with the

instructions in FAR 15.403-5(b)(1) and Table 15-2. By submitting this proposal, we grant the Contracting Officer and

authorized representative(s) the right to examine, at any time before award, those records, which include books, documents,

accounting procedures and practices, and other data, regardless of type and form or whether such supporting information is

specifically referenced or included in the proposal as the basis for pricing, that will permit an adequate evaluation of the

proposed price.

(10) Date of submission; and

(11) Name, title, and signature of authorized representative.

B. In submitting your proposal, you must include an index, appropriately referenced, of all the certified cost or pricing data

and information accompanying or identified in the proposal. In addition, you must annotate any future additions and/or

revisions, up to the date of agreement on price, or an earlier date agreed upon by the parties, on a supplemental index.

C. As part of the specific information required, you must submit, with your proposal-
(1) Certified cost or pricing data (as defined at FAR 2.101). You must clearly identify on your cover sheet that certified cost or

pricing data are included as part of the proposal.

(2) Information reasonably required to explain your estimating process, including-

(i) The judgmental factors applied and the mathematical or other methods used in the estimate, including those used in

projecting from known data; and

(ii) The nature and amount of any contingencies included in the proposed price.

D. You must show the relationship between line item prices and the total contract price.You must attach cost-element

breakdowns for each proposed line item, using the appropriate format prescribed in the "Formats for Submission of Line Item

Summaries" section of this table. You must furnish supporting breakdowns for each cost element, consistent with your cost

accounting system.

E. When more than one line item is proposed, you must also provide summary total amounts covering all line items for each

element of cost.

F. Whenever you have incurred costs for work performed before submission of a proposal, you must identify those costs in your

cost/price proposal.

G. If you have reached an agreement with Government representatives on use of forward pricing rates/factors, identify the

agreement, include a copy, and describe its nature.

H. As soon as practicable after final agreement on price or an earlier date agreed to by the parties, but before the award

resulting from the proposal, you must, under the conditions stated in FAR 15.406-2, submit a Certificate of Current Cost or

Pricing Data.

II. Cost Elements

Depending on your system, you must provide breakdowns for the following basic cost elements, as applicable:

A. Materials and services. Provide a consolidated priced summary of individual material quantities included in the various

tasks, orders, or line items being proposed and the basis for pricing (vendor quotes, invoice prices, etc.). Include raw

materials, parts, components, assemblies, and services to be produced or performed by others. For all items proposed, identify

the item and show the source, quantity, and price. Conduct price analyses of all subcontractor proposals. Conduct cost

analyses for all subcontracts when certified cost or pricing data are submitted by the subcontractor. Include these analyses as

part of your own certified cost or pricing data submissions for subcontracts expected to exceed the appropriate threshold in

FAR 15.403-4. Submit the subcontractor certified cost or pricing data and data other than certified cost or pricing data as part

of your own certified cost or pricing data as required in paragraph IIA(2) of this table. These requirements also apply to all

subcontractors if required to submit certified cost or pricing data.

(1) Adequate Price Competition. Provide data showing the degree of competition and the basis for establishing the source and

reasonableness of price for those acquisitions (such as subcontracts, purchase orders, material order, etc.) exceeding, or

expected to exceed, the appropriate threshold set forth at FAR 15.403-4 priced on the basis of adequate price competition. For

interorganizational transfers priced at other than the cost of comparable competitive commercial work of the division,

subsidiary, or affiliate of the contractor, explain the pricing method (see FAR 31.205-26(e)).
(2) All Other. Obtain certified cost or pricing data from prospective sources for those acquisitions (such as subcontracts,

purchase orders, material order, etc.) exceeding the threshold set forth in FAR 15.403-4 and not otherwise exempt, in

accordance with FAR 15.403-1(b) ( i.e., adequate price competition, commercial products or commercial services, prices set by

law or regulation or waiver). Also provide data showing the basis for establishing source and reasonableness of price. In

addition, provide a summary of your cost analysis and a copy of certified cost or pricing data submitted by the prospective

source in support of each subcontract, or purchase order that is the lower of either $15 million or more, or both more than the

pertinent certified cost or pricing data threshold and more than 10 percent of the prime contractor's proposed price. Also

submit any information reasonably required to explain your estimating process (including the judgmental factors applied and

the mathematical or other methods used in the estimate, including those used in projecting from known data, and the nature

and amount of any contingencies included in the price). The Contracting Officer may require you to submit cost or pricing data

in support of proposals in lower amounts. Subcontractor certified cost or pricing data must be accurate, complete and current

as of the date of final price agreement, or an earlier date agreed upon by the parties, given on the prime contractor’s

Certificate of Current Cost or Pricing Data. The prime contractor is responsible for updating a prospective subcontractor’s

data. For standard commercial products fabricated by the offeror that are generally stocked in inventory, provide a separate

cost breakdown, if priced based on cost. For interorganizational transfers priced at cost, provide a separate breakdown of cost

elements. Analyze the certified cost or pricing data and submit the results of your analysis of the prospective source’s

proposal.When submission of a prospective source’s certified cost or pricing data is required as described in this paragraph, it

must be included as part of your own certified cost or pricing data. You must also submit any data other than certified cost or

pricing data obtained from a subcontractor, either actually or by specific identification, along with the results of any analysis

performed on that data.

B. Direct Labor. Provide a time-phased (e.g., monthly, quarterly, etc.) breakdown of labor hours, rates, and cost by appropriate

category, and furnish bases for estimates.

C. Indirect Costs. Indicate how you have computed and applied your indirect costs, including cost breakdowns. Show trends

and budgetary data to provide a basis for evaluating the reasonableness of proposed rates. Indicate the rates used and provide

an appropriate explanation.

D. Other Costs. List all other costs not otherwise included in the categories described above (e.g.,special tooling, travel,

computer and consultant services, preservation, packaging and packing, spoilage and rework, and Federal excise tax on

finished articles) and provide bases for pricing.

E. Royalties. If royalties exceed $1,500, you must provide the following information on a separate page for each separate

royalty or license fee:

(1) Name and address of licensor.

(2) Date of license agreement.

(3) Patent numbers.

(4) Patent application serial numbers, or other basis on which the royalty is payable.

(5) Brief description (including any part or model numbers of each contract item or component on which the royalty is payable)

(6) Percentage or dollar rate of royalty per unit.

(7) Unit price of contract item.

(8) Number of units.

(9) Total dollar amount of royalties.

(10) If specifically requested by the Contracting Officer, a copy of the current license agreement and identification of

applicable claims of specific patents (see FAR 27.202 and 31.205-37).

F. Facilities Capital Cost of Money. When you elect to claim facilities capital cost of money as an allowable cost, you must

submit FormCASB-CMF and show the calculation of the proposed amount (see FAR 31.205-10).

III. Formats for Submission of Line Item Summaries
A. New Contracts (including letter contracts).

Cost Elements Proposed Contract EstimateTotal Cost

Proposed Contract

Estimate-Unit Cost Reference

(1) (2) (3) (4)

Column Instruction

(1) Enter appropriate cost elements.

(2)

Enter those necessary and reasonable costs that, in your judgment, will properly be

incurred in efficient contract performance. When any of the costs in this column have

already been incurred (e.g., under a letter contract), describe them on an attached

supporting page. When preproduction or startup costs are significant, or when

specifically requested to do so by the Contracting Officer, provide a full identification

and explanation of them.

(3) Optional, unless required by the Contracting Officer.

(4) Identify the attachment in which the information supporting the specific cost element

may be found.

(Attach separate pages as necessary.)

B. Change Orders, Modifications, and Claims.

Cost

Elements

Estimated Cost of

All Work Deleted

Cost of Deleted

Work Already

Performed

Net Cost

To Be

Deleted

Cost of

Work

Added

Net Cost

of

Change

Reference

(1) (2) (3) (4) (5) (6) (7)

Column Instruction

(1) Enter appropriate cost elements.

(2)

Include the current estimates of what the cost would have been to complete the deleted

work not yet performed (not the original proposal estimates), and the cost of deleted

work already performed.

(3)

Include the incurred cost of deleted work already performed, using actuals incurred if

possible, or, if actuals are not available, estimates from your accounting records. Attach

a detailed inventory of work, materials, parts, components, and hardware already

purchased, manufactured, or performed and deleted by the change, indicating the cost

and proposed disposition of each line item. Also, if you desire to retain these items or any

portion of them, indicate the amount offered for them.

(4) Enter the net cost to be deleted, which is the estimated cost of all deleted work less the

cost of deleted work already performed. Column(2) minus Column(3) equals Column(4).
(5)

Enter your estimate for cost of work added by the change. When nonrecurring costs are

significant, or when specifically requested to do so by the Contracting Officer, provide a

full identification and explanation of them. When any of the costs in this column have

already been incurred, describe them on an attached supporting schedule.

(6)

Enter the net cost of change, which is the cost of work added, less the net cost to be

deleted. Column(5) minus Column(4) equals Column(6). When this result is negative,

place the amount in parentheses.

(7) Identify the attachment in which the information supporting the specific cost element

may be found.

(Attach separate pages as necessary.)

C. Price Revision/Redetermination.

Cutoff Date

Number of

Units

Completed

Number of

Units To

Be

Completed

Contract

Amount

Redetermination

Proposal Amount Difference

(1) (2) (3) (4) (5) (6)

Cost

Elements

Incurred CostPreproduction

Incurred CostCompleted

Units

Incurred

Cost-Work

in

Progress

Total

Incurred

Cost

Estimated

Cost to

Complete

Estimated

Total

Cost

Reference

(7) (8) (9) (10) (11) (12) (13) (14)

(Use as applicable)

Column Instruction

(1) Enter the cutoff date required by the contract, if applicable.

(2) Enter the number of units completed during the period for which experienced costs of

production are being submitted.

(3) Enter the number of units remaining to be completed under the contract.

(4) Enter the cumulative contract amount.

(5) Enter your redetermination proposal amount.

(6)

Enter the difference between the contract amount and the redetermination proposal

amount. When this result is negative, place the amount in parentheses. Column (4)

minus Column (5) equals Column (6).
(7)

Enter appropriate cost elements. When residual inventory exists, the final costs

established under fixed-price-incentive and fixed-price-redeterminable arrangements

should be net of the fair market value of such inventory. In support of subcontract costs,

submit a listing of all subcontracts subject to repricing action, annotated as to their

status.

(8)

Enter all costs incurred under the contract before starting production and other

nonrecurring costs (usually referred to as startup costs) from your books and records as

of the cutoff date. These include such costs as preproduction engineering, special plant

rearrangement, training program, and any identifiable nonrecurring costs such as initial

rework, spoilage, pilot runs, etc. In the event the amounts are not segregated in or

otherwise available from your records, enter in this column your best estimates. Explain

the basis for each estimate and how the costs are charged on your accounting records

(e.g., included in production costs as direct engineering labor, charged to manufacturing

overhead). Also show how the costs would be allocated to the units at their various

stages of contract completion.

(9) Enter in Column (9) the production costs from your books and records (exclusive of

preproduction costs reported in Column (8)) of the units completed as of the cutoff date.

(10)

Enter in Column (10) the costs of work in process as determined from your records or

inventories at the cutoff date. When the amounts for work in process are not available in

your records but reliable estimates for them can be made, enter the estimated amounts

in Column (10) and enter in column (9) the differences between the total incurred costs

(exclusive of preproduction costs) as of the cutoff date and these estimates. Explain the

basis for the estimates, including identification of any provision for experienced or

anticipated allowances, such as shrinkage, rework, design changes, etc. Furnish

experienced unit or lot costs (or labor hours) from inception of contract to the cutoff

date, improvement curves, and any other available production cost history pertaining to

the item(s) to which your proposal relates.

(11) Enter total incurred costs (Total of Columns (8), (9), and (10)).

(12)

Enter those necessary and reasonable costs that in your judgment will properly be

incurred in completing the remaining work to be performed under the contract with

respect to the item(s) to which your proposal relates.

(13) Enter total estimated cost (Total of Columns (11) and (12)).

(14) Identify the attachment in which the information supporting the specific cost element

may be found.

(Attach separate pages as necessary.)