DOD memo: Contractors must justify prices

The Defense Department released a memo this month, describing how and when contracting officers should  get cost and pricing data from contractors to determine whether DOD is paying a reasonable price for a commercial item.

The new memo gives contracting officers guidance on how to approach pricing commercial items. Based on the Federal Acquisition Regulation, officers should first do their own market research—the preferred approach. At times though, little or no purchasing history is available. That is when DOD officials want an officer to get information from the contractor.

“The contracting officer should require contractor-submitted information when needed to make an appropriate determination of price reasonableness. The contractor should be in the best position to substantiate why the price it wishes the government to pay is fair and reasonable,” the memo states.

When reviewing a contractor’s pricing information, defense officials want a contracting officer to consider whether a businessman would conclude the contractor’s pricing data is sufficient enough to decide the price is fair.

To help in the overall effort, the Defense Contract Management Agency’s Cost and Pricing Center will provide expert advice to the acquisition workforce on how to use the new authorities and provide pricing support.

Furthermore, DOD is developing an acquisition rule for the Defense Federal Acquisition Regulation Supplement (DFARS) to support the guidance.

The too-be-proposed rule and the memo are based on the 2013 National Defense Authorization Act, which became law in January 2013. A provision in the bill requires contractors to provide pricing data to DOD. The provision also requires DOD to set up guidance, as well as training for the acquisition workforce, on determining price reasonableness. Congress intended for the guidance to clear up any confusion or inconsistent use of the authority, which had caused uncertainties in the vendor community.