Federal Acquisition Regulation; Determination of Price Reasonableness and Commerciality

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 13, and 15

[FAC 97-14; FAR Case 98-300; Item VI]

RIN 9000-AI45

Federal Acquisition Regulation; Determination of Price

Reasonableness and Commerciality

AGENCIES: Department of Defense (DoD), General Services Administration

(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Interim rule with request for comments.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense

Acquisition Regulations Council (Councils) have agreed on an interim

rule amending the Federal Acquisition Regulation (FAR) to implement

Sections 803 and 808 of the Strom Thurmond National Defense

Authorization Act for Fiscal Year 1999 (Pub. L. 105-261).

EFFECTIVE DATE: September 24, 1999.

Comment Date: Interested parties should submit comments to the FAR

Secretariat at the address shown below on or before November 23, 1999

to be considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to:

General Services Administration, FAR Secretariat (MVR), 1800 F Street,

NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405.

Address e-mail comments submitted via the Internet to:

[email protected]

Please submit comments only and cite FAC 97-14, FAR case 98-300 in

all correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS

Building, Washington, DC 20405 (202) 501-4755, for information

pertaining to status or publication schedules. For clarification of

content, contact Mr. Jeremy Olson at (202) 501-0692. Please cite FAC

97-14, FAR case 98-300.

SUPPLEMENTARY INFORMATION:

A. Background

The Councils initiated this case to implement Sections 803 and 808

of the Strom Thurmond National Defense Authorization Act for Fiscal

Year 1999 (Pub. L. 105-261) as follows:

(a) Section 803 of Public Law 105-261. (1) Paragraphs (a)(2)(A)

through (a)(2)(C) of Section 803 of Public Law 105-261 require that the

FAR provide specific guidance concerning--

(i) The appropriate application and precedence of various price

analysis tools;

(ii) The circumstances under which contracting officers should

require offerors of exempt commercial items to provide information

other than cost or pricing data; and

(iii) The role and responsibility of support organizations in

determining price reasonableness.

(2) Paragraph (a)(2)(D) of Section 803 is not implemented under

this case.

(b) Section 808 of Public Law 105-261. Section 808 of Public Law

105-261 requires amending the FAR to--

(1) Clarify procedures associated with obtaining information other

than cost or pricing data;

(2) Establish that offerors who fail to comply with requirements to

provide the information shall be ineligible for award; and

(3) Establish exceptions, as appropriate.

This is not a significant regulatory action and, therefore, was not

subject to Office of Management and Budget

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review under Section 6(b) of Executive Order 12866, Regulatory Planning

and Review, dated September 30, 1993. This rule is not a major rule

under 5 U.S.C. 804.

B. Regulatory Flexibility Act

This interim rule may have a significant cost or administrative

impact on contractors or offerors within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq., because offerors may be

ineligible for award if they fail to provide the required information

other than cost or pricing data. We have prepared an Initial Regulatory

Flexibility Analysis (IRFA) that is summarized as follows:

The rule will apply to all offerors, large or small, that

respond to solicitations for commercial items which require

submission of information other than cost or pricing data. We expect

few, if any, offerors to fail to comply with the requirements to

provide information other than cost or pricing data.

The FAR Secretariat has submitted a copy of the IRFA to the Chief

Counsel for Advocacy of the Small Business Administration. Interested

parties may obtain a copy from the FAR Secretariat. The Councils will

consider comments from small entities concerning the affected FAR

subpart in accordance with 5 U.S.C. 610. Interested parties must submit

such comments separately and should cite 5 U.S.C 601, et seq. (FAC 97-

14, FAR case 98-300), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does not apply because the changes to

the FAR do not impose information collection requirements that require

the approval of the Office of Management and Budget under 44 U.S.C.

3501, et seq.

D. Determination To Issue an Interim Rule

A determination has been made under the authority of the Secretary

of Defense (DoD), the Administrator of General Services (GSA), and the

Administrator of the National Aeronautics and Space Administration

(NASA) that urgent and compelling reasons exist to promulgate this

interim rule without prior opportunity for public comment. This action

is necessary because this rule implements Section 808 of the Strom

Thurmond National Defense Authorization Act for Fiscal Year 1999 (Pub.

L. 105-261), which required implementation in the FAR by April 15,

1999. However, pursuant to Public Law 98-577 and FAR 1.501, the

Councils will consider public comments received in response to this

interim rule in the formation of the final rule.

List of Subjects in 48 CFR Parts 12, 13, and 15

Government procurement.

Dated: September 14, 1999.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, DoD, GSA, and NASA amend 48 CFR Parts 12, 13, and 15 as

set forth below:

1. The authority citation for 48 CFR Parts 12, 13, and 15 continues

to read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42

U.S.C. 2473(c).

PART 12--ACQUISITION OF COMMERCIAL ITEMS

2. Revise section 12.209 read as follows:

12.209 Determination of price reasonableness.

When contracting for commercial items, the contracting officer must

establish price reasonableness in accordance with 13.106-3, 14.408-2,

or Subpart 15.4, as applicable.

PART 13--SIMPLIFIED ACQUISITION PROCEDURES

3. Amend section 13.106-3 in the introductory text of paragraph (a)

by removing ``shall'' and adding ``must'' in its place, and by revising

paragraph (a)(2) to read as follows:

13.106-3 Award and documentation.

(a) * * *

(2) If only one response is received, include a statement of price

reasonableness in the contract file. The contracting officer may base

the statement on--

(i) Market research;

(ii) Comparison of the proposed price with prices found reasonable

on previous purchases;

(iii) Current price lists, catalogs, or advertisements. However,

inclusion of a price in a price list, catalog, or advertisement does

not, in and of itself, establish fairness and reasonableness of the

price;

(iv) A comparison with similar items in a related industry;

(v) The contracting officer's personal knowledge of the item being

purchased;

(vi) Comparison to an independent Government estimate; or

(vii) Any other reasonable basis.

* * * * *

PART 15--CONTRACTING BY NEGOTIATION

4. Amend section 15.403-1 to add a sentence to the end of paragraph

(c)(3) to read as follows:

15.403-1 Prohibition on obtaining cost or pricing data (10 U.S.C.

2306a and 41 U.S.C. 254b).

* * * * *

(c) * * *

(3) * * * If the contracting officer determines that an item

claimed to be commercial is, in fact, not commercial and that no other

exception or waiver applies, the contracting officer must require

submission of cost or pricing data.

* * * * *

5. Amend section 15.403-3 to revise paragraphs (a) and (c) to read

as follows:

15.403-3 Requiring information other than cost or pricing data.

(a) General. (1) The contracting officer is responsible for

obtaining information that is adequate for evaluating the

reasonableness of the price or determining cost realism, but the

contracting officer should not obtain more information than is

necessary (see 15.402(a)). If the contracting officer cannot obtain

adequate information from sources other than the offeror, the

contracting officer must require submission of information other than

cost or pricing data from the offeror that is adequate to determine a

fair and reasonable price (10 U.S.C. 2306a(d)(1) and 41 U.S.C.

254b(d)(1)). Unless an exception under 15.403-1(b) (1) or (2) applies,

the contracting officer must require that the information submitted by

the offeror include, at a minimum, appropriate information on the

prices at which the same item or similar items have previously been

sold, adequate for determining the reasonableness of the price. To

determine the information an offeror should be required to submit, the

contracting officer should consider the guidance in Section 3.3,

Chapter 3, Volume I, of the Contract Pricing Reference Guide cited at

15.404-1(a)(7).

(2) The contractor's format for submitting the information should

be used (see 15.403-5(b)(2)).

(3) The contracting officer must ensure that information used to

support price negotiations is sufficiently current to permit

negotiation of a fair and reasonable price. Requests for updated

offeror information should be limited to information that affects the

adequacy of the proposal for negotiations, such as changes in price

lists.

(4) As specified in Section 808 of Public Law 105-261, an offeror

who

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does not comply with a requirement to submit information for a contract

or subcontract in accordance with paragraph (a)(1) of this subsection

is ineligible for award unless the HCA determines that it is in the

best interest of the Government to make the award to that offeror,

based on consideration of the following:

(i) The effort made to obtain the data.

(ii) The need for the item or service.

(iii) Increased cost or significant harm to the Government if award

is not made.

* * * * *

(c) Commercial items. (1) At a minimum, the contracting officer

must use price analysis to determine whether the price is fair and

reasonable whenever the contracting officer acquires a commercial item

(see 15.404-1(b)). The fact that a price is included in a catalog does

not, in and of itself, make it fair and reasonable. If the contracting

officer cannot determine whether an offered price is fair and

reasonable, even after obtaining additional information from sources

other than the offeror, then the contracting officer must require the

offeror to submit information other than cost or pricing data to

support further analysis (see 15.403-3(a)(1)).

(2) Limitations relating to commercial items (10 U.S.C. 2306a(d)(2)

and 41 U.S.C. 254b(d)). (i) The contracting officer must limit requests

for sales data relating to commercial items to data for the same or

similar items during a relevant time period.

(ii) The contracting officer must, to the maximum extent

practicable, limit the scope of the request for information relating to

commercial items to include only information that is in the form

regularly maintained by the offeror as part of its commercial

operations.

(iii) The Government must not disclose outside the Government

information obtained relating to commercial items that is exempt from

disclosure under 24.202(a) or the Freedom of Information Act (5 U.S.C.

552(b)).

6. Amend section 15.404-1 to revise paragraph (b)(2) introductory

text, (b)(2)(i) and (b)(2)(ii); and to add (b)(2)(vii), (b)(3) and

(b)(4) to read as follows:

15.404-1 Proposal analysis techniques.

* * * * *

(b) * * *

(2) The Government may use various price analysis techniques and

procedures to ensure a fair and reasonable price. Examples of such

techniques include, but are not limited to, the following:

(i) Comparison of proposed prices received in response to the

solicitation. Normally, adequate price competition establishes price

reasonableness (see 15.403-1(c)(1)).

(ii) Comparison of previously proposed prices and previous

Government and commercial contract prices with current proposed prices

for the same or similar items, if both the validity of the comparison

and the reasonableness of the previous price(s) can be established.

* * * * *

(vii) Analysis of pricing information provided by the offeror.

(3) The first two techniques at 15.404-1(b)(2) are the preferred

techniques. However, if the contracting officer determines that

information on competitive proposed prices or previous contract prices

is not available or is insufficient to determine that the price is fair

and reasonable, the contracting officer may use any of the remaining

techniques as appropriate to the circumstances applicable to the

acquisition.

(4) Value analysis can give insight into the relative worth of a

product and the Government may use it in conjunction with the price

analysis techniques listed in paragraph (b)(2) of this section.

* * * * *

7. Amend section 15.404-2 to revise paragraphs (a)(1) and (a)(2) to

read as follows:

15.404-2 Information to support proposal analysis.

(a) Field pricing assistance. (1) The contracting officer should

request field pricing assistance when the information available at the

buying activity is inadequate to determine a fair and reasonable price.

The contracting officer must tailor requests to reflect the minimum

essential supplementary information needed to conduct a technical or

cost or pricing analysis.

(2) The contracting officer must tailor the type of information and

level of detail requested in accordance with the specialized resources

available at the buying activity and the magnitude and complexity of

the required analysis. Field pricing assistance is generally available

to provide--

(i) Technical, audit, and special reports associated with the cost

elements of a proposal, including subcontracts;

(ii) Information on related pricing practices and history;

(iii) Information to help contracting officers determine

commerciality and price reasonableness, including--

(A) Verifying sales history to source documents;

(B) Identifying special terms and conditions;

(C) Identifying customarily granted or offered discounts for the

item;

(D) Verifying the item to an existing catalog or price list;

(E) Verifying historical data for an item previously not determined

commercial that the offeror is now trying to qualify as a commercial

item; and

(F) Identifying general market conditions affecting determinations

of commerciality and price reasonableness.

(iv) Information relative to the business, technical, production,

or other capabilities and practices of an offeror.

* * * * *

[FR Doc. 99-24415 Filed 9-23-99; 8:45 am]

BILLING CODE 6820-EP-P