5.2.3 Cost Price Analysis

The PI is also required to provide a technical assessment of the subaward budget. The assessment would include verification that the costs are reasonable and necessary to carry out the proposed project. The cost elements within the subaward budget must be necessary to accomplish the proposed activity.

The Government is responsible for insuring that Georgia Tech maintains adequate policies and procedures governing subcontracting activities on federally sponsored grants and contracts. These activities are monitored through the periodic Contractor Purchasing Systems Review (CPSR) conducted on campus by the Office of Naval Research every three years. The cost price analysis form is a key component in the Government’s review of our purchasing system.

One of the Government’s principal procurement objectives is to obtain fair and reasonable contract prices. Sub-award pricing is a critical element in the pricing of prime contracts and a major consideration in receiving Government consent to sub-awards and approval for contractor purchasing systems. Sub-awards can sometimes represent a major portion of the total dollars spent under a prime contract. Contracting officers cannot ensure the fairness and reasonableness of prime contract prices without evaluating the prices of critical sub-awards.

In accordance with the Federal Acquisition Regulation (FAR), the contracting officer is responsible for the determination of price reasonableness for the prime contract. To make this determination, the contracting officer must conduct an analysis of the relevant facts and data including subcontractor cost or pricing data. In all cases, a main consideration is to assure that the price to be paid for these goods and services is fair and reasonable. This is essential to insure that both University and Government funds are utilized in a cost effective manner and to conserve funding where resources are limited. To accomplish this, some form of cost or price analysis must be made and documented in connection with every procurement action.

A price analysis is an examination of the price proposed by the anticipated subcontractor and an assessment or evaluation as to whether or not it is fair and reasonable. A cost analysis however, actually examines the individual cost elements that comprise the total proposed estimated cost. These elements generally include such things as labor rates, material costs, overhead or indirect rates, a cost of money factor, general and administrative expenses (G&A), and a profit or fee.

It is not possible for personnel in the Office of Sponsored Programs (OSP) to determine if the price is fair and reasonable without input from others. OSP can evaluate costs, but assistance will be required from the responsible Project Director/Principal Investigator to evaluate the appropriateness of the total price.

If a sub-award exceeding $700,000 is to be issued under a Government contract prime award, OSP must be in compliance with Public Law 87-653, Truth in Negotiations. [The Public Law has been implemented in the United States Code of Federal Regulations 10 U.S.C. 2306a (Armed Forces) and 41 U.S.C. 254b (Public Contracts) and in the Federal Acquisition Regulation Part 15 and Clause No. 52.215-12.]. Public Law 87-653, Truth in Negotiations (TINA) is a requirement for cost or pricing data and certification for any sub-award expected to exceed $700,000. The sub-awardee is required to submit cost or pricing data prior to placement of the sub-award unless one of the following exceptions applies:

  • When the sub-award administrator determines that prices agreed upon are based on adequate price competition.
  • When the sub-award administrator determines that prices agreed upon are based on prices set by law or regulation.
  • When a commercial item is being acquired.
  • When a waiver for cost or pricing data has been granted by the Government contracting officer under the prime award.
  • When modifying a contract or sub-award for commercial items.

Cost or pricing data shall be obtained if the sub-award administrator concludes that none of the exceptions above applies. When cost or pricing data are required, the sub-award administrator shall require the sub-awardee to submit the following in support of any proposal:

  • Cost or pricing data (See FAR 15.408, Table 15-2 for guidance).
  • A certificate of current cost or pricing data, certifying that to the best of its knowledge and belief, the cost and pricing data were accurate, complete, and current as of the date of agreement on price or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price. (See FAR 15.406-2 for format.)
  • For sub-awards under the TINA threshold the guidelines of FAR 15.403-3, Requiring Information Other than Cost or Pricing Data, should be utilized in certain cases. This would also include thorough documentation of cost or price reasonableness in accordance with FAR 15.406-3, documenting the negotiation.