Contract Management

DOD Pricing of Commercial Items Needs Continued Emphasis Gao ID: NSIAD-99-90 June 24, 1999

The Defense Department (DOD), with the encouragement of Congress, is boosting its purchases of commercially available goods and services. Although commercial purchasing is still relatively small and sole-source commercial purchasing is even smaller, DOD expects commercial purchases to increase in the future. It believes that determining fair and reasonable prices for commercial sole-source items will continue to be challenging. The Federal Acquisition Regulation (FAR) cautions military contracting officers not to obtain more information than is necessary to determine price reasonableness, and it stresses the need to limit information requests of the contractors. However, contracting officers may ask contractors to provide sales prices for the same or similar items, to explain their discount policy, and to supply cost data. The FAR defines price analysis as the process of examining and evaluating a proposed price without evaluating its separate cost elements or process. This report (1) determines the extent of price analysis that DOD contracting personnel were doing to arrive at fair and reasonable prices for commercial sole-source items, (2) evaluates how well contract personnel did price analyses, and (3) determines what guidance and training was available to help them determine price reasonableness.

GAO noted that: (1) in 33 of the 65 commercial sole-source purchases GAO reviewed, price analysis consisted of comparing the offered price to an offeror's catalog or price list, or to the price(s) the government previously paid for the same or similar items; (2) contracting officers accepted the offered price in 30 of the 33 purchases and negotiated lower prices in 3 cases (9 percent); (3) in the other 32 purchases, contracting personnel used one or more additional price analysis tools, such as obtaining commercial sales cost information; (4) contracting officers accepted the offered price in 19 of the 32 purchases and negotiated lower prices in 13 cases (41 percent); (5) the price analysis performed by contracting personnel were often too limited to ensure that prices were fair and reasonable; (6) for example, some contracting personnel believed that when the offered price was the same as the catalog or list price, it could be considered a fair and reasonable price; (7) in several cases, contracting personnel did not use pertinent historical pricing information contained in contract files that should have raised questions about the reasonableness of offered prices; (8) contracting officers, generally, were not using a discretionary solicitation clause that requires offerors to provide information other than certified cost and pricing data, such as sales data, in support of their offered prices; (9) some contracting officers paid prices that included unneeded services; (10) many contracting officers were not documenting in the contract file how they determined that a price previously paid for an item was fair and reasonable and, therefore, could be relied on in evaluating the offered price; (11) reasons given for the limited price analysis included workload burdens and urgent requirements for items; (12) DOD officials also noted the reduced negotiation leverage that contracting officers now have when purchasing commercial items in a sole-source environment; (13) DOD continues to provide guidance and training to assist contracting personnel in contracting for commercial items and in performing sound price analysis; (14) DOD's efforts have yet to be fully understood or embraced by all DOD contracting personnel; (15) the training should improve their price analysis and negotiating skills; and (16) recent legislation requires increased guidance for contracting personnel on price analysis tools, the appropriate use of information other than cost or pricing data, and the role of support agencies.


Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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