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  • Question

    Assuming all source data is disclosed: 1. Can the proposal Bill of Material reflect assigned market value of an obsolete part, which is based on purchase order history plus a contractor assigned mark up? 2. Which FAR/DFARS reference provides guidance on this situation?


    Answer

    This response is based on the information provided.  We suggest you discuss with your contract administrator and/or legal department and the government contracting officer as appropriate. 
     
    A contractor clearly must be able to assign materials pricing sufficient to cover the cost they incur to acquire said materials.  Government contracting officers are ultimately responsible for determining the final prices paid for those materials as fair and reasonable.  This places the onus initially on the contractor to provide adequate data to support the basis of its material costs; that data is what the government will use to analyze costs in conjunction with the guidance set forth in FAR 15.404-1 -- Proposal Analysis Techniques. 
     
    The specific issue appears to be a question of reasonableness of the pricing associated with this obsolete part.  We find no specific guidance precluding a contractor from "assigning a value to an obsolete part that exceeds prices paid in the past"; FAR 31.201-3 -- Determining Reasonableness, is the overarching guidance to government acquisition professionals who must conduct the necessary analysis to support a fair and reasonable determination by the cognizant contracting officer.  Certainly a part or component that has become obsolete may manifest additional cost in an acquisition in recreating it or re-engineering a replacement but that additional cost should be quantified and justified by the contractor; it should not simply be some arbitrary "assigned value". 
     
    Your situation--lifetime buy of obsolete parts, with supporting invoices showing payment to vendor--indicates the appropriate price is what was paid, even though it apparently varies from previous payment history. 
    Legal precedence set forth in the 1963 US Court of Claims case "Bruce Construction v. United States" established 'actual cost is the best measure of value' when analyzing an equitable adjustment proposal.  The Certificate of Current Cost or Pricing Data at FAR 15.406-2 states,"...to the best of my knowledge and belief, the cost or pricing data....submitted.... are accurate, complete, and current..."  The price paid tot eh vendor is the most accurate, complete, and current.

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