Chapter 9 - Determining Fair and Reasonable Pricing

9.2.4 When to perform a cost analysis

Cost analysis is used whenever there is no price competition or when the price is set by law or regulation, a cost analysis is not required. A cost analysis is required when:

• Negotiating a contract with a sole source or on an emergency basis.
• If during a competitive sealed bidding solicitation, only one bid is received and it differs substantially from your agency's independent estimate of the contract price. If it is determined that the bid is unreasonable and a decision is made to not re-compete (e.g., market survey indicates that you would not get competition), then the agency may formally cancel the solicitation and negotiate a contract price with the single bidder. A cost breakdown of the single bid price must then be obtained, analyzed and a determination made about that price's reasonableness.
• Negotiating a contract price modification. If the modification changes the work authorized under the contract, and changes the price or total estimated cost either upwards or downwards, the buyer should obtain a detailed breakdown of the supplier's proposed costs before negotiating the change in contract price.
• Insight into the supplier's fixed and variable cost structures would allow the buyer to negotiate volume discounts appropriate for the volume.
• Identification of the key drivers of the supplier's costs would allow the buyer an opportunity to impact or reduce one or more of these key cost elements in order to negotiate a lower price for the Commonwealth.
• Price analysis is inadequate to determine a fair and reasonable price.