FAR 15.404-1 Checklist: Price vs. Cost Analysis in Federal Bids
When you submit a negotiated proposal on a federal construction project, the government does not simply glance at your bottom line and file it away. Under federal procurement rules, the contracting officer must evaluate whether your offered price is fair and reasonable. Under FAR 15.404-1 Proposal analysis techniques, agency evaluators use specific analytical tools ranging from high-level market comparisons to line-by-line audits of labor hours and equipment rates. For trade contractorsâincluding framing, drywall, and interior specialistsâunderstanding these evaluation methods helps ensure your bid numbers withstand scrutiny without raising red flags.
Checklist Step 1: Verify the Required Evaluation Method
Federal contracting officers determine the level of detail for their evaluation based on the complexity and circumstances of the procurement. Before assembling your proposal figures, verify which analytical pathway applies to your submission:
- Price Analysis: This approach is mandatory whenever certified cost or pricing data are not required. It evaluates your total proposed price without dissecting individual cost elements or your proposed profit margin.
- Cost Analysis: This method is required whenever you must submit certified cost or pricing data under thresholds discussed in FAR 15.403-4 certified cost or pricing data rules. Cost analysis evaluates individual cost elements and fee to establish what the work should cost under reasonable economy and efficiency.
- Hybrid Review: Even when cost analysis is required for specific elements, the contracting officer should still conduct price analysis to verify that the aggregate price offered is fair and reasonable.
- Data Other Than Certified Data: If the contracting officer cannot establish price reasonableness through standard market checks alone, they may require data other than certified cost or pricing data to conduct cost analysis or verify cost realism.
Checklist Step 2: Screen Against the Government's Preferred Price Checks
When the government conducts price analysis, contracting officers have seven recognized techniques at their disposal under FAR 15.404-1(b). The regulation explicitly identifies two preferred methods, followed by five alternative approaches when primary data is unavailable:
- Comparison of Competing Offers (Preferred): Comparing submitted bids from competing offerors. Adequate price competition normally establishes a fair and reasonable price.
- Comparison to Historical Prices (Preferred): Comparing your figures against prior prices paid by the government or commercial buyers for identical or similar items. The previous price must serve as a valid basis: if significant time has elapsed or terms differ, the contracting officer must adjust for market factors, economic conditions, quantities, and differing terms.
- Parametric Estimating and Rough Yardsticks: Evaluating proposals using metrics such as dollars per pound, horsepower, or other standard units to highlight pricing anomalies that warrant further inquiry.
- Published Market Data: Checking figures against published price lists, commodity indexes, discounts, or rebate arrangements.
- Independent Government Cost Estimates (IGCE): Comparing your number against an estimate prepared independently by agency technical personnel.
- Market Research Findings: Benchmarking against pricing data obtained through competitive market research.
- Offeror-Supplied Supporting Data: Reviewing data other than certified cost or pricing data submitted directly by the contractor.
Checklist Step 3: Audit Individual Cost Elements for Scrutiny
If your negotiated solicitation triggers cost analysis, government evaluators will look past the top-line number and inspect every separate component of your estimate. Use this checklist to verify that your figures align with federal standards:
- Contingency and Necessity: Confirm that all proposed expenses are necessary, and verify that any allowances for contingencies are justifiable.
- Historical Trends: Ensure your cost projections match your current and historical pricing data, rather than projecting past inefficiencies into future work.
- Rates and Indirects: Check that your labor rates, negotiated or audited indirect cost rates, and cost of money factors comply with the cost principles in FAR part 31.
- Comparative Checks: Anticipate that evaluators will compare your line items against your own previous incurred costs, prior estimates, competing proposals, and government forecasts.
- Completeness: Ensure all data necessary for negotiation is identified in writing; omission of required pricing data can stall negotiations.
Checklist Step 4: Prepare for Technical Analysis of Labor and Materials
Contracting officers regularly call upon internal specialists in engineering, science, or management to conduct a technical analysis of your proposal. This technical review evaluates whether your proposed resources reflect reasonable economy and efficiency. At a minimum, the technical analysis examines:
- The proposed types and quantities of materials.
- The necessity and volume of labor hours, along with the proposed labor mix.
- Allowances for scrap, spoilage, processes, special tooling, equipment, or real property.
- Technical capability to satisfy project specifications based on the proposed resources.
Checklist Step 5: Prevent Cost Realism Adjustments and Unit-Price Distortion
Two final analytical hurdles can jeopardize an otherwise solid proposal: cost realism evaluations and unit-price structuring. For cost-reimbursement contracts, the contracting officer must perform a cost realism analysis to determine the probable cost of performance for each offeror. The government independently evaluates whether proposed costs reflect a clear understanding of the project scope and match the methods described in your technical submission. Evaluators will adjust your proposed cost and fee upward or downward to realistic levels to establish the probable cost used in source selection.
On firm-fixed-price federal contracts, cost realism analyses may be used in exceptional casesâsuch as when requirements are poorly understood or quality risks existâto assess performance risk, though offered prices cannot be adjusted. Finally, check your unit prices: FAR 15.404-1 requires unit prices to reflect intrinsic value and remain proportional to base costs. Evaluators will reject methods that distort unit rates, such as spreading overhead equally across items that carry vastly different base expenses.
Sources
Published November 9, 2026. No affiliate links on this page. Facts come from the sources linked above; check them for updates.