Can I deem the proposed price fair and reasonable even though the probable cost is 2.5% higher than proposed cost? It doesn't make sense to enter into negotiations to increase the contract price and subsequently obtain certified cost or pricing data as stipulated in DFARS 215.371.
The Contracting Officer can determine a proposed amount that is 2.5% different than the Government's Estimate as fair and reasonable. The values do not have to be identical. One important question the KO faces: Is it reasonable (realistic) to assume the contractor will not escalate labor rates? The contract will be awarded with an "estimated" cost and the use of a cost-reimbursement contract is reasonable given that existence of cost and other uncertainties in this acquisition.
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I would caution; however, that since the basis of the difference (lack of escalation) is known, if the contract is awarded at the proposed estimated cost amount, the Government would be entering into this CPFF contract already knowing there is a strong probability of a cost overrun. If the contractor does in fact escalate their labor rates, the Government will have to obtain additional funding or end the contract when the funding is exhausted.
Without the Certificate of Certified or Pricing Data, the KO may face some challenges in pursuing a Defective Pricing case.
It is the KO's call to make and document in the files.