Price Analysis: FAR 15.404-1(b)(2) Techniques and Documentation

Under FAR 15.404-1(b)(2), the price analysis techniques a contracting officer can use to determine whether a proposed price is fair and reasonable are: comparison of competitive proposals, comparison to previously proposed or paid prices for the same or similar items, parametric estimating or rough yardsticks, comparison with published price lists and market prices, comparison with independent government cost estimates, comparison with market research prices, and analysis of non-certified data provided by the offeror. The two preferred methods are comparison of competitive proposals and comparison to historical prices. A contracting officer picks whichever combination fits the buy, uses at least one, and documents the result.

When Price Analysis Applies

FAR 15.404-1(a)(2) requires price analysis whenever certified cost or pricing data are not obtained. Since most federal contract actions fall below the $2.5 million certified cost or pricing data threshold after the October 2025 inflation adjustment, price analysis is the default evaluation method. Above the threshold, several exceptions still push evaluation back to price analysis: adequate price competition, commercial products and services, prices set by law or regulation, waivers granted by the head of the contracting activity, and commercial modifications.¹

For simplified acquisitions under the $350,000 Simplified Acquisition Threshold that took effect October 1, 2025, the contracting officer must still find the price fair and reasonable, but the methods are more flexible and can include market research, comparison to prior purchases, current price lists, or the contracting officer’s personal knowledge of the item.²³

Even when certified cost or pricing data are required and cost analysis takes the lead on individual cost elements, price analysis should still run alongside it to verify the overall price makes sense.⁴

The Seven Techniques Under FAR 15.404-1(b)(2)

The regulation lists seven techniques. They are not exhaustive, and a contracting officer can use them alone or in combination.

Comparison of proposed prices received in response to the solicitation. Independent offers competing for the same requirement drive prices toward fair market value. This is the strongest indicator of reasonableness and is often sufficient on its own.
Comparison of proposed prices to historical prices paid, whether by the government or other buyers, for the same or similar items. The prior price has to be a valid basis for comparison, which turns on three conditions discussed below.
Use of parametric estimating methods or application of rough yardsticks such as dollars per pound, per horsepower, or per unit of output. These flag significant inconsistencies rather than pin down a precise price.
Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements. Being listed does not by itself prove fairness, but it establishes a starting point.
Comparison of proposed prices with independent government cost estimates. The internal projection acts as a cross-check, particularly useful when market data is thin.
Comparison of proposed prices with prices obtained through market research for the same or similar items.
Analysis of data other than certified cost or pricing data provided by the offeror. When information from the offeror falls short of certified data, it can still support the analysis.

FAR 15.404-1(b)(2)(i) and (ii) identify the first two techniques, comparison of competitive proposals and comparison to historical prices, as the preferred methods.⁴

Choosing and Combining Techniques

The contracting officer picks whichever combination the situation calls for. A competitive firm-fixed-price buy with several independent offerors often needs nothing beyond the first technique; in that setting, comparing the proposed prices against each other satisfies the price analysis requirement on its own, without any separate cost analysis.⁵ A sole-source acquisition of a specialized item may require historical comparisons, parametric yardsticks, and a government cost estimate working together before the officer can defensibly conclude the price is reasonable.⁴

Data selection follows the preference order in FAR 15.402. First, rely on competition and require no additional data. Second, look at price-related data such as catalog prices and prior sales, drawing first from government records, then outside sources, and finally from the offeror. Third, obtain cost data only to the extent needed to reach a fair and reasonable price.⁶

Standard sources for the underlying data include published price lists and commercial catalogs, FPDS.gov for historical award data, SAM.gov for opportunities and locality wage data, and GSA eLibrary for summary contract award data and GSA Schedule labor category ceiling rates.⁷

Making Historical Prices Usable

The historical-price technique is where most evaluations run into trouble. FAR 15.404-1(b)(2)(ii) identifies three conditions that can invalidate a prior price as a basis for comparison: too much time has passed, the terms and conditions differ significantly, or the reasonableness of the earlier price was never firmly established.⁴

When the prior price is valid, adjustments still have to account for materially different terms and conditions, quantities, and economic factors. A contract for 500 units three years ago is not a clean comparison to a contract for 50 units today. Volume, delivery schedule, and packaging all move price. For similar but not identical items, the officer also has to account for the differences between the old item and the new one, often with technical assistance.

Economic adjustments typically rely on the Bureau of Labor Statistics Producer Price Index. BLS publishes a price adjustment guide for contracting parties covering how to escalate a base price using PPI data. The simplest approach multiplies the old price by the percentage change in the relevant PPI series; more sophisticated approaches use composite indexes that weight energy, equipment, and labor.⁸

Adequate Price Competition as a Standalone Basis

When adequate price competition exists, certified cost or pricing data are not required regardless of contract value, and the competition itself carries the reasonableness determination. The criteria are specific. At least two responsible offerors must compete independently for the award. Price must be a substantial factor in the source selection. And no one at the contracting officer’s level or above can have found the winning price unreasonable.¹

For civilian agencies outside DoD, NASA, and the Coast Guard, a single offer can still qualify as adequate competition under two paths. If the contracting officer reasonably expected multiple offerors and can conclude the lone offeror priced its proposal expecting competition, the price may be treated as competitively established, with approval required above the contracting officer level. Alternatively, if a price analysis clearly shows the single offer is reasonable compared to recent competitive prices for similar items, adjusted for market conditions and quantities, that also qualifies.¹

Price Analysis vs. Cost Analysis

Price analysis evaluates the total proposed price as a single number and compares it against external benchmarks such as competing offers, historical prices, or published price lists. It never examines what the contractor spent on labor, overhead, subcontracts, or profit. Cost analysis does the opposite: it breaks the proposal apart and evaluates each cost element individually, including proposed profit or fee.⁴

Cost analysis is triggered by the submission of certified cost or pricing data. Where a fair and reasonable price cannot be reached through price analysis alone, cost analysis can also be applied to non-certified data. Most contracting officers encounter price analysis far more often because of the broad exceptions covering commercial items, competitive procurements, and actions below the threshold.

Documenting the Determination

The output of the analysis lands in the Price Negotiation Memorandum. FAR 15.406-3 requires the contracting officer to document the principal elements of the negotiated agreement in the contract file, with the contracting officer as the approval authority. When the fair and reasonable determination rests on price analysis, the summary in the PNM identifies the source and type of data used, the technique or combination of techniques applied, and the basis for concluding the price is reasonable.⁹

Once signed, the memorandum goes into the permanent contract file. If the award is audited or protested, it is the primary evidence that the price was properly vetted. An inadequate price evaluation, including failing to conduct a price realism analysis the solicitation promised or rejecting a low price as unrealistic when the solicitation did not call for a realism evaluation, has been a recurring ground for sustained protests at the GAO.¹⁰ Whichever technique the officer chooses, the record has to show the reasoning behind it.

1
eCFR. 48 CFR 15.403-1 – Prohibition on Obtaining Certified Cost or Pricing Data
2
Acquisition.GOV. 13.106-3 Award and Documentation
3
Federal Register. Federal Acquisition Regulation: Inflation Adjustment of Acquisition-Related Thresholds
4
Acquisition.GOV. 15.404-1 Proposal Analysis Techniques
5
Acquisition.GOV. 15.305 Proposal Evaluation
6
Acquisition.GOV. 15.402 Pricing Policy
7
U.S. General Services Administration (GSA). Conduct Market Research
8
U.S. Bureau of Labor Statistics. Price Adjustment Guide for Contracting Parties
9
Acquisition.GOV. 15.406-3 Documenting the Negotiation
10
U.S. Government Accountability Office. Bid Protests at GAO: A Descriptive Guide