Price analysis is a complex subject in the world of government contracting. In this blog, we'll summarize some myths raised by Daniel Chalfant, President – Alexander Associates, a breakout session presenter at this year’s GCP Summit in San Diego, CA. With over 35 years of experience, Mr. Chalfant brought a wealth of knowledge to the table, aiming to clarify these misconceptions.
Why Do These Myths Exist?
Before we dive into the myths themselves, it's essential to understand why these misunderstandings persist:
- Subjectivity: Price analysis is inherently subjective, making it susceptible to varying interpretations by different stakeholders, such as auditors and contractors.
- Regulations: The Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation (DFAR) are written primarily for government buyers. However, they often apply to industry buyers and prime contractors, causing confusion.
- Contract Clauses: Prime contractors are often governed by specific contract clauses (Part 52 or DFAR 252) that may not align entirely with the standard FAR and DFAR provisions.
- Commercial Expertise: Prime contractors may lack in-depth knowledge of FAR and DFAR but excel in commercial pricing strategies.
Now, let's explore the five common myths in price analysis:
- Historical Prices Are Bad
- Myth: Some believe that historical pricing, a widely used price analysis technique, is inherently flawed.
- Reality: Historical prices can be valid and legally binding contracts, offering valuable data points for determining fair and reasonable prices. However, the key is ensuring that the historical pricing is "valid" and supported by proper documentation.
- Always Need a Price Analysis
- Myth: There's a misconception that a price analysis is always necessary in government contracting.
- Reality: While price analysis is a fundamental step, it's not universally required for every procurement. Smaller acquisitions or commercially available items may not warrant extensive price analysis.
- Inadequate Price Competition for Distributors
- Myth: It's commonly believed that there can't be adequate price competition when there's one original equipment manufacturer (OEM) and multiple distributors.
- Reality: Adequate price competition can be achieved even in such scenarios. The key is to encourage competition among the distributors themselves.
- Catalog Prices Must Be Competitive
- Myth: Some contractors struggle to understand what constitutes "competitive" catalog prices.
- Reality: Catalog prices being competitive doesn't necessarily mean they need to be published or available on the internet. It's more about whether they are competitive within the industry and market.
- Prime Contractors Can't Do Independent Estimates
- Myth: It's believed that prime contractors are prohibited from conducting independent estimates, as it's perceived as an exclusive government practice.
- Reality: There is no prohibition on prime contractors conducting independent estimates. In fact, it can be a valuable tool for ensuring accurate price analysis.
Conclusion
Price analysis in government contracting is a multifaceted field, often plagued by misconceptions and myths. It's crucial to recognize that historical prices can be valuable, price analysis isn't always mandatory, price competition can exist among distributors, and catalog prices must be competitive within the industry. Additionally, prime contractors are not prohibited from conducting independent estimates.
To navigate the complexities of price analysis successfully, it's essential to understand the regulations, contract clauses, and the unique dynamics of the commercial and government contracting worlds. By debunking these myths, government contractors can conduct more accurate and efficient price analyses, ultimately benefiting both buyers and sellers in the marketplace.
Feeling like you’re missing the meat this session had to offer? Start making plans to attend the 2024 GCP Summit in person! Sessions like this one are only the tip of the iceberg. You’ll have opportunities to listen to leaders in the government contract pricing industry and to network with colleagues from government contractors around the country and government agencies with whom you do business. We look forward to meeting you at the 2024 GCP Summit, June 11-13, 2024, in beautiful San Diego, CA.