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    I proposed no escalation based on previous awards for the same effort and contract award. Contractor stated that their annual increase happens in June, therefore they are proposing escalation during this time frame. I just don't think it make sense to give them an escalation after 6 mos of work? Any advise if appreciated....


    Answer

    The following response is based solely on the question and background information provided. As we do not have all of the facts particular to your contract, program, and situation, we highly recommend you consult your Contracting Officer and Legal Office for guidance.
     
    You do not say whether this is a competitive procurement. Assuming the answer is no and that the Government is required to perform cost analysis on the contractor's submitted certified cost and pricing data, your question appearsto ask whether one of the contractor's proposed cost elements, escalation, is reasonable. That question can only be answered by the contracting officer who performs cost analysis in accordance with FAR 15.404-1. Per FAR 15.404-1(b), "Cost analysis is the review and evaluation of any of the separate cost elements...in an offeror's or contractor's proposal as needed to determine a fair and reasonable price...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."  FAR 15.404-1(b) identifies several techniques that may be used to perform such cost analysis, including, but not limited to: (2)(i)(A) "(t)he necessity for, and reasonableness of, proposed costs", (2)(i)(B) "(p)rojection of the offeror's cost trends, on the basis of current and historical cost or pricing data", (2)(iii) "(c)omparison of costs proposed by the offeror for individual cost elements with...(a)ctual costs previously incurred by the same offeror...and...(f)orecasts of planned expenditures." The contracting officer may and should use any combination of the techniques listed in FAR 15.404-1(b) as necessary to determine a fair and reasonable price.
     
    Note, however, that the objective is to reach agreement on a fair and reasonable price. The contracting officer need not come to agreement with the contractor on every element of cost. See the guidance at FAR 15.405:
     
    "(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....(T)he 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...
     
    (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."
     
    As an aside, you state this will be a firm fixed-price R&D contract. You may want to review the guidance on contract type selection for R&D contracts in FAR 35.006(b) and (c) as well as the related DFARS guidance and confirm that FFP is appropriate for this acquisition.
     

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