Handbook of Business Procedures
March 5, 2012
May 5, 2016
7.6.2. COST REASONABLENESS OR COST/PRICE ANALYSIS - FEDERAL GRANTS AND U.S. GOVERNMENT PRIME CONTRACTS
When federal funds are used to purchase goods and services, a determination of cost reasonableness or cost/pricing data requirements must be made depending on the dollar amount of the purchase.
A. Purchases Less than or Equal to $5,000
For orders less than or equal to $5,000, departments are responsible for determining that prices paid for goods services are reasonable. For complete federal guidelines, see Federal Acquisition (FAR), Subpart 15.4—Contract Pricing, 15.403-1 Prohibition on obtaining cost or pricing data.
B. Purchases Greater than $5,000
For purchases over $5,000, cost reasonableness is required if the purchases have not been competitively awarded. A purchasing buyer reviews the requisition to ensure that competitive bidding has been accomplished. If only one quote has been obtained, the requesting department will be required to provide additional information documenting how the price quoted by the supplier was determined to be fair and reasonable.
If cost/price analysis is required, it must be documented in the purchase order file. Departments must use the Federal Funds Cost Justification Worksheet to submit the required information. Note: In cases where cost/price analysis is required and the amount of purchase is $15,000 or less, the requesting department is responsible for documenting and maintaining evidence of cost/price reasonableness. The Federal Funds Cost Justification Worksheet should still be routed to the Purchasing Office for review and signature.
Cost/price analysis may be accomplished in various ways. The following are suggestions for determining cost or pricing data for a product or service:
- Base price reasonableness on published pricing or commercial catalog pricing.
- Establish the market price by obtaining a quote for a similar product or service from another supplier or by using catalog pricing from a manufacturer of similar equipment.
- Verify the price for a similar product sold to another agency.
- Determine the price previously paid for a prior purchase of the same item. If a cost justification was provided for a previous purchase of the same item for the same price, the previous cost justification may be reused.
- Provide a make-or-buy analysis, which is an estimate by the requesting department of the cost for the department to manufacture the item (parts, labor, etc.) in-house.
If the purchasing buyer determines that the price is not reasonable, the Purchasing Office may request additional information from the requesting department or the proposed supplier.
C. Federal Contract Purchases Greater than $700,000
Orders over $700,000 that are funded by federal contracts require that Federal Acquisition (FAR), 15.406-2 Certificate of Current Cost or Pricing Data be completed. The requesting department’s cost/pricing data requirements must be certified by the federal funding source in accordance with Federal Acquisition (FAR), Subpart 15.4—Contract Pricing.
- United States Office of Management and Budget (OMB) Circular A-110, 45 Cost and Price Analysis
- Federal Funds Cost Justification Worksheet
- Federal Acquisition Regulation (FAR)