Cost or pricing data John Cancellara 7 March 2018

Why Do We Have These Rules? Contracting Officers must purchase supplies and service from RESPONSIBLE sources at FAIR & REASONABLE prices Contracting Officers must NOT obtain more info from Contractor than is necessary to determine reasonableness If CERTIFIED Cost or Pricing Data (COPD) is NOT required, preference in FAR is in the following order: 1) no additional data from Offeror 2) Information Other Than Cost or Pricing Data (COPD) 3) Cost or Pricing Data (COPD) Must ensure price reasonableness with the least info possible

3 Categories of Pricing Data If 1) Over threshold; and 2) No exception applies No Additional Data Other Than Certified Cost or Pricing Data Certified Cost or Pricing Data Whatever is necessary to determine fair & reasonable price Price Analysis Cost Analysis Price Analysis or + +

What is Cost or Pricing Data? (COPD) All facts that, As of the date of price agreement, or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price, Prudent buyers and sellers would reasonably expect to affect price negotiations significantly. This is one of the few things I ask you to MEMORIZE

What is CERTIFIED Cost or Pricing Data? (COPD) Cost or Pricing Data (COPD) WITH a certificate  Offeror CERTIFIES in writing that all COPD is CURRENT, ACCURATE, and COMPLETE Distinction between FACT vs. JUDGMENT Certificate does NOT constitute a representation as to the accuracy of the contractor’s judgment on the estimate of future costs or projections Certificate applies to the DATA upon which the judgment or estimate is based We “SWEEP” before signing a Certificate

When is Certified COPD Required? 1) Over the Threshold 2) None of the 4 EXCEPTIONS apply We MUST provide it, whether or not requested

What Format is Required for COPD Table 15-2 (FAR) Individual COST ELEMENTS must be broken down into 3 categories BASE RATE DOLLAR AMOUNTS Cost Element Base Rate Total Direct Labor 10 Hours $100/Hr $1,000 Labor O/H 10% $100 Profit $1,100 20% $220 $1,320

What is Other Than Certified COPD? Non-Certified Information adequate to evaluate price reasonableness and determine cost realism MUST include information regarding prices at which same items have previously been sold Can be any form required Brochure Additional market data Full cost proposal (not-certified) Required unless MARKET FORCES are such that price reasonableness can be determined without it Can look just like Certified COPD

4 Exceptions to Certified Cost or Pricing Data Adequate Price Competition Prices Set by Law or Regulation Commercial Items Waivers Other Than COPD may still be required

First Exception – Adequate Price Competition 1) 2 or more RESPONSIBLE offerors, COMPETING INDEPENDENTLY submit priced offers that SATISFY the Government’s REQUIREMENT If PRICE will be a SUBSTANTIAL in source selection NO finding that the price of the otherwise-successful offeror is UNREASONABLE 2) REASONABLE EXPECTATION based upon MARKET RESEARCH that (see #1 above) 2 or more responsible offerors, competing independently will submit priced offers that satisfy the Gov requirement Offeror BELIEVED that at least one other offeror was CAPABLE of competing Offeror had NO reason to believe other potential offeror(s) did NOT intend to compete Proposed price is approved ONE LEVEL ABOVE PCO as fair & reasonable Can Happen 3 Different Ways

First Exception – Adequate Price Competition 3) PRICE ANALYSIS demonstrates that the proposed price is FAIR & REASONABLE in COMPARISON with CURRENT or RECENT prices for SAME or SIMILAR items, ADJUSTED to reflect CHANGES in MARKET CONDITIONS, that RESULTED from adequate price competition (#1 or #2 above). Can Happen 3 Different Ways

First Exception – Adequate Price Competition If Adequate Price Competition DOES exist, can the PCO still require COPD? YES PCO may still require OTHER THAN COPD if the price was not set by MARKET FORCES Will not be certified Purpose of this Exception is to deem MARKET PRICING as fair & reasonable

Second Exception – Prices Set by Law or Regulation Pronouncements in the form of periodic RULINGS, REVIEWS, or similar actions embodied in LAWS Does not necessarily mean that the price is REASONABLE, only that a CERTIFIED COPD is not required This exception can NOT be used for “SIMILAR” items Other Than Certified COPD may still be required

Third Exception – Commercial Items Acquisition of COMMERCIAL items (FAR 2.101) MODIFICATIONS to commercial items that do NOT change them to non-commercial items If the cost of the modification itself does not exceed to CCOPD threshold, and If the cost of the modification itself does not exceed 5% of the value of the item Services OF A TYPE offered and sold COMPETITIVELY in SUBSTANTIAL quantities in the COMMERCIAL MARKETPLACE Does not necessarily mean that the price is REASONABLE, only that a CERTIFIED COPD is not required Purpose of this Exception is to deem MARKET PRICING as fair & reasonable

Fourth Exception – Waiver May only be issued by HCA WITHOUT power to delegate Used if price can be determined fair & reasonable without submission e.g. Certified COPD furnished on previous production buys Waiver does NOT flow down to subcontractors unless it specifically states SHOULD request waiver if PCO has sufficient information to determine price reasonableness Memo from Shay Assad in 2007 to “...make it clear that the standard to be met for granting a TINA waiver is extremely high…” Not likely to obtain a waiver, however PCO has duty to request

Examples of Other than Certified COPD Situations 1) Adequate price competition may exist, but the source selection could be based upon best value with technical factor weighted greater than price. Market forces may not be directly setting the price. 2) Tariff prices may have been set by a law or regulation, however it may be common practice to negotiate a lower price than the full tariff. 3) An item may be determined to be commercial because it is offered for sale, however there may not yet be a history of actual sales. Market forces may not be directly setting the price. Exception to Certified COPD may apply, but Other than Certified COPD still required for fair & reasonable price

Certified COPD Threshold CURRENTLY $750K Price adjustment amount must consider the absolute value of BOTH INCREASES AND DECREASES unless changes are unrelated and separately priced Contract change that causes both a deletion of $400K of work and an addition of $400K of work may result in zero dollar modification, BUT IS STILL OVER THE CERTIFIED COPD THRESHOLD Threshold changes – check FAR 15.403-4(a)(1)

Subcontractor Certified COPD Requirements Subcontractor is required to submit Certified COPD (and certificate) to Prime Contractor if: Prime is required to submit Certified COPD to Gov; AND Subcontract is above threshold; AND No exception applies to Subcontract Prime Contractor is required to submit ANALYSIS of subcontractor COPD to Gov (as part of prime proposal) Government assist audit may be required if Subcontractor is not willing to disclose COPD to Prime Contractor Subcontractor Certified COPD (not just the Prime’s analysis) SHALL flow up to Gov if: Subcontract is over $13.5M; OR Subcontract is over threshold AND more than 10% or Prime Contractor’s proposal Subcontract thresholds change – check FAR 15.404-3(c)(1)

When is Price Analysis performed? ALWAYS Evaluate proposed price and proposed profit WITHOUT evaluating separate cost elements Use when Certified COPD is NOT required Also use when Certified COPD IS required COMPARISON of proposed price to: Other proposed prices Historical prices paid Published price lists Other data obtained through MARKET RESEARCH Parametric estimating methods Dollars/pound, etc. When is Price Analysis performed? ALWAYS

Cost Analysis Evaluation of separate COST ELEMENTS and profit/fee proposed Use when Certified COPD IS required Use when Other Than Certified COPD IS required in the form of individual cost elements COMPARISON of individual cost elements with: Previous actuals Previous estimates Independent Government Estimate (IGE) Forecists of planned expenditures Verification that the offeror’s cost submissions are in accordance with the contract cost principles and procedures Application of judgment to determine how well the proposed costs represent what the cost of the contract should be