(The policies and techniques follow :) (Part 8, Section III-Armed Services Procurement Regulation) PROCUREMENT BY NEGOTIATION PART 8-PRICE NEGOTIATION POLICIES AND TECHNIQUES 3-800 SCOPE OF PART. This part sets forth the price negotiation policies and techniques applicable to negotiated prime contracts and those subcontracts which are subject to approval or review within a department. The principles in this part apply to negotiation of prices on all types of contracts and to revised prices as well as initial prices. 3-801 BASIC POLICY. 3-801.1 General. It is the policy of the Department of Defense to procure supplies and services from responsible sources at fair and reasonable prices calculated to result in the lowest ultimate overall cost to the Government. Sound pricing depends primarily upon the exercise of sound judgment by all personnel concerned with the procurement. 3-801.2 Responsibility of Contracting Officers. (a) Contracting officers, acting within the scope of their appointments (and in some cases acting through their authorized representatives) are the exclusive agents of their respective Departments to enter into and administer contracts on behalf of the Government in accordance with ASPR and Departmental procedures. Each contracting officer is responsible for performing or having performed all administrative actions necessary for effective contracting. The contracting officer shall exercise reasonable care, skill and judgment and shall avai1 himself of all of the organizational tools (such as the advice of specialists in the fields of contracting, finance, law, contract audit, mobilization planning, engineering, traffic management and cost analysis) necessary to accomplish the purpose as, in his discretion, will best serve the interests of the Government. (b) To the etxent services of specialists are utilized in the negotiation of contracts, the contracting officer must coordinate a team of experts, requesting advice from them, evaluating their counsel, and availing himself of their skills as much as possible. The contracting officer shall obtain simultaneous coordination of the specialist efforts to the greatest practical extent. He shall not, however, transfer his own responsibilities to them. Thus, the final negotiation of price, including price redetermination and evaluation of cost estimates, remains the responsibility of the contracting officer. 3-801.3 Responsibility of Other Personnel. Personnel, other than the contracting officer, who determine industrial mobilization plans and type, quality, quantity, and delivery requirements for items to be purchased, can influence the degree of competition obtainable as well as have a material effect upon prices. Failure to finalize requirements in sufficient time to allow : (i) a reasonable period for preparation of requests for proposals; causes delinquency in delviery and uneconomical prices. Requirements issued on an urgent basis or with unrealistic delivery schedules should be avoided since they generally increase price or restrict desired competition. Personnel determining requirements, specifications, mobilization plans, adequacy of source of supply and like matters have responsibility in such areas, equal to that of the contracting officer, for timely, sound and economical procurement. 3-802 PREPARATION FOR NEGOTIATION. 3-802.1 Product or Service. Knowledge of the product or service, and its use, is essential to sound pricing. Before soliciting quotations, every contracting officer should develop, where feasible, an estimate of the proper price level or value of the product or service to be purchased. Such estimates may be based on a physical inspection of the product and review of such items as drawings, specifications, job process sheets, and prior procurement data. When necessary, requirements and technical specialists should be consulted. The primary responsibility for the adequacy of specifications and for the delivery requirements must necessarily rest with requirements and technical groups. However, the contracting officer should be aware of the effect which these factors may have on prices and competition, and should, prior to award, inform requirements and technical groups of any unsatisfactory effect which their decisions have on prices or competition. 3-802.2 Selection of Prospective Sources. Selection of qualified sources for solicitation of proposals is basic to sound pricing. Proposals should be solicited from a sufficient number of competent potential sources to insure adequate competition. (See ASPR 1-302, 1-902, 3-101, 3-104, 3-105, and 12-102.) 3-802.3 Requests for proposals. Requests for proposals shall contain the information necessary to enable a prospective offeror to prepare a proposal properly. The request for proposals shall be as complete as possible with respect to (i) item description or statement of work; (ii) specifications; (iii) Government-furnished property, if any; (iv) required delivery schedule; and (v) contract clauses. If a price breakdown is required, the request for proposals shall so state. Requests for proposals, including requests for revised proposals, shall specify a date for their submission. Any extension of time granted to one prospective offeror shall be granted uniformly to all. Each request for proposals shall be issued to prospective offerors at the same time and no prospective offeror shall be given the advantage of advance knowledge that proposals are to be requested. Generally, requests for proposals shall be in writing. However, in appropriate cases, such as the procurement of perishable subsistence, proposals may be solicited orally. 3-803 TYPE OF CONTRACT. (a) The selection of an appropriate contract type and the negotiation of prices are related and should be considered together. ASPR 3-402 lists some of the factors for this joint consideration. The objective is to negotiate a contract type and price that includes reasonable contractor risk and provides the contractor with the greatest incentive for efficient and economical performance. When negotiations indicate the need for using other than a firm fixed-price contract, there should be compatibility between the type of contract selected and the contractor's accounting system. (b) In the course of a procurement program, a series of contracts, or a single contract running for a lengthy term, the circumstances which make for selection of a given type of contract at the outset will frequently change so as to make a different type more appropriate during later periods. In particular, the repetitive or unduly protracted use of cost-reimbursement type or time and materials contracts is to be avoided where experience has provided a basis for firmer pricing which will promote efficient performance and will place a more reasonable degree of risk on the contractor. Thus, in the case of a time and materials contract, continuing consideration should be given to converting to another type of contract as early in the performance period as practicable. 3-804 CONDUCT OF NEGOTIATIONS. 3-804.1 General. Evaluation of offeror's or contractors' proposals, including price revision proposals, by all personnel concerned with the procurement, as well as subsequent negotiations with the offeror or contractor, shall be completed expeditiously. Complete agreement of the parties on all basic issues shall be the objective of the contract negotiations. Oral discussions or written communications shall be conducted with offerors to the extent necessary to resolve uncertainties relating to the purchase or the price to be paid. Basic questions should not be left for later agreement during price revisions or other supplemental proceedings. Cost and profit figures of one offeror or contractor shall not be revealed to other offerors or contractors. 3-804.2 Late Proposals. (a) Written requests for proposals shall contain a provision substantially as follows: "Late Proposals. The Government reserves the right to consider proposals or modifications thereof received after the date indicated for such purpose, but before award is made, should such action be in the interest of the Government." (b) While it is important and desirable that the Government should not be precluded from gaining the benefit of late proposals, careful consideration of such situations is required to prevent excessive resolicitations and other abuses. Where failure of any proposal to arrive on time is due solely to a delay for which the offeror was not responsible, or where only one proposal is received, the contracting officer may consider the proposal without utilizing the resolicitation procedure prescribed below. Proposals, or modifications thereof, received after the latest date specified for receipt by the contracting officer should be considered if there is a probability of a significant (i) reduction in price or cost to the Government, or (ii) technical improvement, as compared with proposals previously received. The following procedure shall apply, except that it need not be followed for small purchases: (1) Where a late low proposal, or a late proposal otherwise worthy of consideration, is received from a qualified firm, the contracting officers shall document a recommendation that the proposal, either should or should not be considered. and send it for decision to such other authority as may be prescribed by the department concerned. (2) When it is determined by such other authority that it is in the best interest of the Government to consider the late proposal, the contracting officer shall, consistent with ASPR 3-805.1 (a) (ii), resolicit all firms (including the late offeror) which have submitted proposals and have been determined to be capable of meeting requirements. Such resolicitation shall specify a date for submission of new or revised proposals. In appropriate cases, such as where further delay in making award will jeopardize meeting the Government's requirement, a resolicitation may provide that late proposals shail not be considered, notwithstanding the Government's reservation of a right to consider such proposals (as stated in the Late Proposals provision required by 3-804.2 (a)). 3-805 SELECTION OF OFFERORS FOR NEGOTIATION AND AWARD. 3.805.1 General. (a) The normal procedure in negotiated procurements, after receipt of initial proposals, is to conduct such written or oral discussions as may be required to obtain agreements most advantageous to the Government. Negotiations shall be conducted as follows: (i) where a responsible offeror submits a responsive proposal which, in the contracting officer's opinion, is clearly and substantially more advantageous to the Government than any other proposal, negotiations may be conducted with that offeror only; or (ii) where several responsible offerors submit offers which are grouped so that a moderate change in either the price or the technical proposal would make any one of the group the most advantageous offer to the Government, further negotiations should be conducted with all offerors in that group. Whenever negotiations are conducted with more than one offeror, no indication shall be made to any offeror of a price which must be met to obtain further consideration, since such practice constitutes an auction technique which must be avoided. No information regarding the number or identity of the offerors participating in the negotiations shall be made available to the public or to anyone whose official duties do not require such knowledge. Whenever negotiations are being conducted with several offerors, while such negotiations may be conducted successively, all offerors participating in such negotiations shall be offered an equitable opportunity to submit such pricing, technical, or other revisions in their proposals as may result from the negotiations. All offerors shall be informed that after the submission of final revisions, no information will be furnished to any offeror until award has been made. Modifications of proposals received after the submission of final prices shall be considered only under the circumstances set forth in ASPR 3-804.2(b) (relating to late proposals). (b) There are certain circumstances where formal advertising is not possible and negotiation is necessary. In the conduct of such negotiations, where a substantial number of clearly competitive proposals have been obtained and where the contracting officer is satisfied that the most favorable proposal is fair and reasonably priced, award may be made on the basis of the initial proposals without oral or written discussion; provided, that the request for proposals notifies all offerors of the possibility that award may be made without discussion of proposals received and, hence, that proposals should be submitted initially on the most favorable terms from a price and technical standpoint, which the offeror can submit to the Government. In any case where there is uncertainty as to the pricing or technical aspects of any proposal, the contracting officer shall not make an award without further exploration and discussion prior to award. Also, when the proposal most advantageous to the Government involves a material departure from the stated requirements, consideration shall be given to offering the other firms which submitted proposals an opportunity to submit new proposals on a technical basis which is comparable to that of the most advantageous proposal; provided, that this can be done without revealing to the other firms any information which is entitled to protection under ASPR 3-109. (c) Excent where cost-reimbursement type contracts are to be used (see ASPR 3-805.2), a request for proposals may provide that after receipt of initial technical proposals, such proposals will be evaluated to determine those which are acceptable to the Government or which, after discussion, can be made acceptable, and upon submission of prices thereafter, award shall be made to that offeror of an acceptable proposal who is the low responsible offeror. (d) The procedures set forth in (a), (b), and (c) above may not be applicable in appropriate cases when procuring research and development, or special services (such as architect-engineer services) or when cost-reimbursement type contracting is anticipated. Award of a contract may be properly influenced by the proposal which promises the greatest value to the Government in terms of possible performance, ultimate productibility, growth potential, and other factors rather than the proposal offering the lowest price or probable cost and fixed fee. (e) Whenever in the course of negotiation a substantial change is made in the Government's requirements (for example, increases or decreases in quantities or material changes in the delivery schedules), all offerors shall be given an equitable opportunity to submit revised proposals under the changed requirements. 3-805.2 Cost-Reimbursement Type Contracts. In selecting the contractor for a cost-reimbursement type contract, estimated costs of contract performance and proposed fees should not be considered as controlling. There is no requirement that cost-reimbursement type contracts be awarded on the basis of either (1) the lowest proposed cost, (2) the lowest proposed fee, or (3) the lowest total estimated cost plus proposed fee. The cost estimate is important to determine the prospective contractor's understanding of the project and ability to organize and perform the contract. The agreed fee must be within the limits prescribed by law and regulation and appropriate to the work to be performed (see ASPR 3-808). Beyond this however, the primary consideration in determining to whom the award shall be made is: Which contractor can perform the contract in a manner most advantageous to the Government. 3-806 COST PROFIT AND PRICE RELATIONSHIPS. (a) Where products are sold in the open market, costs are not necessarily the controlling factor in establishing a particular seller's price. Similarly where competition may be ineffective or lacking, estimated costs plus estimated profit are not the only pricing criteria. In some cases, the price appropriately may represent only a part of the seller's cost and include no estimate for profit or fee, as in research and development projects where the contractor is willing to share part of the costs. In other cases, price may be controlled by competition as set forth in ASPR 3-805.1(a). The objective of the contracting officer shall be to negotiate fair and reasonable prices in which due weight is given to all relevant factors, including those in ASPR 3-101. (b) Profit or fee is only one element of price and normally represents a smaller proportion of the total price than do such other estimated elements as labor and material. While the public interest requires that excessive profits be avoided, the contracting officer should not become so preoccupied with particular elements of a contractor's estimate of cost and profits that the most important consideration, the total price itself, is distorted or diminished in its significance. Government procurement is concerned primarily with the reasonableness of the price which the Government ultimately pays, and only secondarily with the eventual cost and profit to the contractor. 3-807 PRICING TECHNIQUES. 3-807.1 General. Policies set forth in this part may be applied in a variety of ways in the evaluation of offerors' or contractors' proposals and in the negotiation of contract prices. The extent to which any particular method, or combination of methods, should be used will depend upon the judgment of the contracting officer. The following paragraphs describe several of the principal price negotiation techniques and the circumstances under which each may be used. They are equally applicable to initial and subsequent price negotiations. 3-807.2 Pricing Individual Contracts. Each contract shall be priced separately and independently, and no consideration shall be given to losses or profits realized or anticipated in the performance of other contracts. This prohibition neither prevents the negotiation of fixed overhead and other rates applicable to several contracts during annual or other specific periods nor prohibits forward pricing agreements applicable to several contracts. 3-807.3 Price Analysis. (a) Some form of price analysis should be made in every procurement, even when competitive proposals have been submitted. The presence of effective competition, however, may make it possible to limit considerably the degree of price analysis required. In the absence of effective price competition, the negotiating team must make a thorough analysis of contractors' proposals and must be in possession of current, complete, and correct cost or pricing data before decisions are made on contract prices. Accordingly, the contractor should be required to furnish such data promptly as it becomes available throughout the negotiation process. To assure that the negotiating team is in possession of such data, the certificate set forth in ASPR 3-807.7 shall be obtained for each separate negotiation when the amount of the procurement action exceeds $100,000, and the price negotiated is based more on the contractor's actual or estimated cost than on effective competition, established catalog or market prices, or prices set by law or regulation. The certificate may be required when lesser amounts are involved in particular cases where the contracting officer considers that the circumstances warrant such action. The certificate shall be obtained from the prime contractor immediately prior to agreement on negotiated prices, targets, or price revisions. However, the requirement for a contractor's certificate of pricing is not to be considered a substitute for a thorough examination and analysis of the contractor's proposal by the negotiating team. (b) One form of price analysis is the comparison of prior quotations and contract prices with current quotations for the same or similar end items. To provide a suitable basis for comparison, appropriate allowances may have to be made for differences in such factors as specifications, quantities ordered, time for delivery, Government-furnished materials, and the general level of business and prices. (c) Rough yardsticks may often be developed (in such terms as dollars per pound, per horsepower, or other units) to point up apparent gross inconsistencies which should be subjected to additional pricing techniques, including cost analysis. Such yardsticks should be considered as an indispensable adjunct to cost analysis, since a study of a single offeror's estimated costs in sole source situations will not indicate whether the proposed price is fair and reasonable because it affords no opportunity for comparison with other products of the same kind. 3-807.4 Cost Analysis. (a) The need for cost analysis depends on the effectiveness of the methods of price analysis outlined in ASPR 3-807.3, the amount of the proposed contract, and the cost and time needed to accumulate the information necessary for analysis. When cost analysis is undertaken, the contracting officer must exercise judgment in determining the extent of the analysis. Cost analysis is do sirable whenever: (i) effective competition has not been obtained; (ii) a valid basis for price comparison has not been established, because of the lack of definite specifications, the novelty of the product, or for other reasons; (iii) price comparisons have revealed apparent inconsistencies which cannot be satisfactorily explained or otherwise reasonably accounted for; (iv) the prices quoted appear to be excessive on the basis of information available; (v) the proposed contract is of a significant amount and is to be awarded to a sole source; (vi) the proposed contract will probably represent a substantial percentage of the contractor's total volume of business; or (vii) a cost-reimbursement, incentive, price redeterminable, or time and material contract is negotiated. (b) Cost analysis involves the evaluation of specific elements of cost and the effect on prices of such factors as: (i) allowances for contingencies; (ii) the necessity for certain costs; (iii) the reasonableness of amounts estimated for the necessary costs; (iv) the basis used for allocation of overhead costs; and (v) the appropriateness of allocations of particular overhead costs to the proposed contract. (c) Among the several types of cost comparisons that should be made, where the necessary data are available, are comparisons of a contractor's or offeror's current estimated costs with: (i) actual costs previously incurred by the contractor or offeror; and with its last prior estimate for the same or similar item or with a series of prior estimates; (ii) current estimates from other possible sources; and |