Cost realism, price reasonableness, and should-cost analysis concepts used in federal contract pricing decisions.
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- What is cost realism analysis?
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An evaluation of whether proposed costs are realistic for the technical approach and will allow performance at the negotiated price.- Under what contract types is cost realism analysis required by FAR?
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Cost-plus and time-and-materials contracts where cost is a significant factor in award.- Who typically performs cost realism analysis?
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The contracting officer and members of the source selection team during proposal evaluation.- What is the primary focus of cost realism evaluation?
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Whether the contractor's cost estimates reflect realistic understanding of the work and proposed technical approach.- What is price reasonableness?
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A determination that the proposed price represents fair value to the government and is consistent with market conditions.- What are the two basic methods to determine price reasonableness?
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Competitive comparison and cost/price analysis.- How does competitive evaluation establish price reasonableness?
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By comparing the proposed price with prices from competing offers for substantially the same product or service.- When must cost or price analysis be performed to establish price reasonableness?
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When adequate price competition is not present or when the item is a sole-source acquisition.- What is should-cost analysis?
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An analysis that determines what the cost of the contract should be based on technical knowledge and historical data.- What is the primary purpose of should-cost analysis?
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To develop an independent government estimate of what contractor costs should be to perform the work.- In what contracting situations is should-cost analysis most commonly used?
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In major system acquisitions, sole-source contracts, and proposals with significant pricing uncertainty.- What elements are typically evaluated in a should-cost analysis?
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Direct labor, materials, subcontract costs, overhead rates, and profit or fee.- What must be documented as part of cost and price analysis?
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The basis for the analysis, methodology used, assumptions, and conclusions regarding price reasonableness.- What is the difference between cost analysis and price analysis?
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Cost analysis examines cost elements and estimating methodology; price analysis compares prices without examining cost elements.- How is pricing established in fixed-price contracts?
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The contractor bears cost overrun risk; pricing is based on competitive quotation or best available price information.
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