What part of the FAR or any other guide instructs on how to evaluate the $4.5 million price quote (in scope increase LOE) on a CPFF Contract Modification?
Unless an exception applies as described in FAR 15.403-1 (b), you should obtain certified cost or pricing data from the contractor in accordance with FAR 15.403-4. Once it has been determined that Certified Cost or Pricing data is required the contractor should follow the instructions found in Table 15-2 -- Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data Are Required found in FAR Part 15.
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Once the contractor submits their proposal following Table 15-2 instructions, this should provide the necessary data to conduct the analysis of the contractor’s proposal. FAR 15.404-1 provides descriptions of various types of Proposal Analysis techniques. Of particular interest in your case would be to conduct a cost analysis in accordance with FAR 15.404-1(c) and requesting a Technical Analysis in accordance with FAR 15.404-1(e). These analyses, and potentially others described in 15.404-1, will assist you in establishing the Government’s negotiation objectives in order to negotiate a fair and reasonable price (see FAR 15.405 – Price Negotiation).
FAR 15.404-2 provides additional information to assist in the analysis of this proposal. For example, it describes procedures for requesting field pricing assistance and audit assistance.
FAR 15.404-4 prescribes policies for establishing a profit, or in your case, a fee objective for negotiations. In addition, a more detailed description of establishing the Government’s position regarding fee is found in DFARS 215.404-4 which describes the procedures required to utilize the DoD’s structured approach for developing a profit or fee objective on any negotiated contract action when certified cost or pricing data is obtained.
Another information source for conducting an analysis of a contractor’s proposal is found in the “Contract Pricing Reference Guides” located in the Acquisition Community Connection at https://acc.dau.mil/CommunityBrowser.aspx?id=406579. In particular, Volume 3, “Cost Analysis” contains additional information to assist with the analysis.