PRICE AND COST ANALYSIS

Some form of price or cost analysis should be performed in connection with every procurement action, regardless of whether the organization is a vendor or a subrecipient. The form and degree of analysis, however, are dependent on the particular subcontract or purchase, and the pricing situation. Determination of price
reasonableness through price or cost analysis is required even though the procurement
is source directed by the contracting officer of the sponsoring agency.

In some purchases, price analysis alone will be sufficient; in others, price analysis will be used to corroborate the conclusions arrived at through cost analysis. The form and degree of analysis are dependent on facts surrounding a particular subcontracting or purchasing situation. The scope of price analysis performed and the particular techniques used will depend on whether or not cost analysis is done, as well as on such factors as type of product or service, dollar value, purchase method, and extent of competition.
The words "vendor" and "subcontractor" used herein are interchangeable.

Price Analysis is the process of deciding if the asking price for a product or service is fair and reasonable, without examining the specific cost and profit calculations the manufacturer and/or supplier used in arriving at the price. It is basically a process of comparing the price with known indicators of reasonableness.

When adequate price competition does not exist, some other form of analysis is
required. Some reasons that could affect adequate price competition are: specifications are not definitive, tolerances are restrictive, or production capacity limits those eligible to bid.

Examples of other forms of price analysis information include:

• analysis of previous prices paid
• comparison of vendor's price with the in-house estimate
• comparison of quotations or published price lists from multiple vendors

Cost Analysis is the element -by-element examination of the estimated or actual cost of contract performance to determine the probable cost to the vendor. The goal is to form an opinion on whether the proposed costs are in line with what reasonably economical and efficient performance should cost.

Cost or pricing data, which should be provided by the subcontractor, are the means for conducting cost analysis. Such data provide factual information about the costs that the subcontractor says may be incurred in performing the contract. Cost analysis should be performed in those situations where price analysis does not yield a fair and reasonable price and where cost data are required in accordance with prime contract clauses.

Cost analysis techniques are used to break down a contractor's cost or pricing data so as to verify and evaluate each component. Some of the cost elements examined for
necessity and reasonableness are materials costs, labor costs, equipment and overhead. These costs can be compared with actual costs previously incurred for similar work, the cost or pricing data received from other manufacturer and/or supplier, and independent cost estimate breakdowns.