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  • Question

    Can you use FAR Part 15.404-1(2)(I) to determine the prices proposed under a FAR 15 procurement fair and reasonable.


    Answer

    FAR 15.404-1 provides a contracting officer a broad range of methodologies to determine fair and reasonable. The FAR is statute.  The Better Buying Power Memo's were policy initiatives.  In general, Policy does not overturn Statute in the execution of the duties of a contracting officer. 

    Looking at this FAR section...

    (2) The Government may use various cost analysis techniques and procedures to ensure a fair and reasonable price, given the circumstances of the acquisition. Such techniques and procedures include the following: (i) Verification of cost data or pricing data and evaluation of cost elements, including—
    (A) The necessity for, and reasonableness of, proposed costs, including allowances for contingencies;
    (B) Projection of the offeror’s cost trends, on the basis of current and historical cost or pricing data;
    (C) Reasonableness of estimates generated by appropriately calibrated and validated parametric models or cost-estimating relationships; and
    (D) The application of audited or negotiated indirect cost rates, labor rates, and cost of money or other factors.
    I read this as "the government may use" the listed techniques.  There is no requirement to use or not use any of the listed approaches.  The Better Buying Power Memo's did make some efforts to streamline and minimize data calls to contractors.  But I don't see it changing the FAR.
    A specific example may help.  Say you do a parametric estimate to estimate a 10,000 square foot Administrative Building.  Your estimate comes out to $1.5 Million plus or minus $200,000.  A hurricane hits and prices spike 30% in the area.  Fair and reasonable is now $1.95 Million plus or minus $260,000 for the same work. 
    Below is decent working definition of Fair and Reasonable.
    A fair and reasonable price is the selling price for a service or good that is fair to both the buyer and the seller, who are involved in the transaction. The price is determined by judgement taking into consideration the economic realities of the marketplace and the bargaining power of both the parties.
    Given that definition, FAR 15.404-1 is a good starting place to make that determination. 


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