Methods for Performing Price Analysis
Abstract
This paper will discuss the various methods for performing price analysis and describe which method is the best for the widest variety of situations. To do this we will take a brief look at the seven price analysis methods called out in the Federal Acquisition Regulation (FAR) 15.404-1(b), and do a comparison of them.
Price Analysis Methods
To quantify if the asking price is reasonable, without having to scrutinize all of the cost or profit details included in the price, the government uses price analysis methods as follows.
Comparison of proposed prices received in response to the solicitation method. This method compares all of the bid prices submitted to make a determination which ones are of the best value to the government. If there has been adequate price competition all of the prices should be fairly close to on another. If there happens to be a bid price that is extremely low compared to the other bids, this is a good indicator that this vendor did not completely understand requirements set forth in the solicitation.
Sealed bidding is a process used by the government to make its needs known through solicitation. These solicitations are called an Invitation for Bids (IFB). Sealed bids are fixed-price and are used when the contracting officer feels that adequate price competition exists and that the governments requirements are well enough defined by statement of work, specifications, and drawing for bidders to submit an educated, accurate, proposal. Sealed bids are awarded by the contracting officer to the lowest bidder, who is determined to be both responsive and responsible. Responsive bidders are those who have not taken any exception to any aspect of the contract. Responsible bidders are those who are deemed to be capable of performing and meeting the terms stated in the IFB. (Murphy, 2008)
Competitive Proposals Competitive proposals are the method used by the government to make its needs known by solicitation. These
This paper will discuss the various methods for performing price analysis and describe which method is the best for the widest variety of situations. To do this we will take a brief look at the seven price analysis methods called out in the Federal Acquisition Regulation (FAR) 15.404-1(b), and do a comparison of them.
Price Analysis Methods
To quantify if the asking price is reasonable, without having to scrutinize all of the cost or profit details included in the price, the government uses price analysis methods as follows.
Comparison of proposed prices received in response to the solicitation method. This method compares all of the bid prices submitted to make a determination which ones are of the best value to the government. If there has been adequate price competition all of the prices should be fairly close to on another. If there happens to be a bid price that is extremely low compared to the other bids, this is a good indicator that this vendor did not completely understand requirements set forth in the solicitation.
Sealed bidding is a process used by the government to make its needs known through solicitation. These solicitations are called an Invitation for Bids (IFB). Sealed bids are fixed-price and are used when the contracting officer feels that adequate price competition exists and that the governments requirements are well enough defined by statement of work, specifications, and drawing for bidders to submit an educated, accurate, proposal. Sealed bids are awarded by the contracting officer to the lowest bidder, who is determined to be both responsive and responsible. Responsive bidders are those who have not taken any exception to any aspect of the contract. Responsible bidders are those who are deemed to be capable of performing and meeting the terms stated in the IFB. (Murphy, 2008)
Competitive Proposals Competitive proposals are the method used by the government to make its needs known by solicitation. These
References: Murphy, J.E.. (2008). Guide to Contract Pricing (5th edition). USA: Management Concepts