Educational Procurement Journal - March 2008 - (Page 6) HEARD O N T H E ST R E E T S Price Reasonableness for Federal Funding T by Cory Harms Iowa State University Some of the most acceptable methods of price analysis are competition, comparable established federal pricing, established price lists, market price, historical price, prior competition, sale of a similar item to other institutions, independent University estimate, similar item comparison, specifically identified item in the award, or a cost analysis. Competition is the most obvious. Requesting informal or formal quotes from at least one other supplier and choosing the lowest cost provider would be shown to be fair and reasonable. You can also compare the price of your selected supplier with established federal pricing like a GSA contract. If the offer is the same or less, it would be considered reasonable. Established price lists or publicly available catalog pricing can also be shown to be reasonable. An established market price (i.e., gold or commodities), a comparison to historical prices paid by the University, or evidence of the price paid for a sale of the same item to another institution could be used to establish a fair price as well. Sometimes information may not be readily available. In these cases, a University may make an independent estimate of the value or compare the value to another similar item that was purchased by the University. In other cases, the award specifically identifies a person to perform work at a rate or a specific make, model, and part number of an item to be purchased for the award. This would be deemed reasonable as the contracting officer would have reviewed this when the proposal was submitted. Finally, if there are several components of the purchase (i.e., items, labor, overhead, etc.), then a cost analysis may need to be done. While a price analysis looks at the whole price, the cost analysis looks at all the components of the price for reasonableness. Once the method is determined, then the comparison needs to be documented. This may be as simple as receiving a quote from another vendor, referencing an earlier order or invoice, printing a commodity price from a market index, or writing a narrative of how the reasonableness was established. The important thing is that it MUST be documented. As always, I hope that I have found someone out there that needs this information to start a discussion. There is a lot more to this than I can fit in this small space, but I hope that the wheels are turning in your head. To find more detailed information, you can visit the links provided below. here are some days I come to work in Purchasing and wonder what will be next. What is going to be the next thing that we are required to keep an eye on? Is it going to be chemical tracking? Export control? Debarred vendors? Lab animal tracking? It is a miracle that, with all of the changes in bid limits, equipment definitions, agents and staff, software systems, etc., we can remember all the different rules and requirements that we are responsible for. So today I thought I would throw federal price reasonableness back on the radar screen! Just a few years back this was something that we didn’t deal with at our University. With the lower equipment and bid limits we had, we were already documenting some of the aspects of this, but admittedly not fully complying. So when this came up on our radar screen, I wondered how many others out there might be in the same boat. It may be that many, if not all, who are reading this are aware of what needs to be done to comply with the federal policy, but my hope is that we have some new agents out there who are saying “What the?” right now. For anyone still reading this, it means you either want to see if I screw it up or have an interest in knowing what the heck I am talking about, so let’s get to it. When expending federal funds for purchases of supplies and equipment, it is required that a price reasonableness analysis be performed and documented. The exact phrasing from OMB A-110 is, “Some form of cost or price analysis shall be made and documented in the procurement files in connection with every procurement action.” This analysis should consist of a review of the price proposed by a supplier and an assessment by the agent of whether the price is fair and reasonable to both parties, considering the quality, delivery, etc. This analysis can be done in a variety of ways, but it must be documented by the agent. How you comply with this at your institution is the million-dollar question. Cory Harms is the associate director of purchasing at Iowa State University. He is president of the MINK (Missouri, Iowa, Nebraska, and Kansas) region and serves on the NAEP Editorial Board. He has presented at both regional and national NAEP meetings and has spoken for the Missouri Association of Public Purchasing (MAPP). e-Mail: clharms@iastate.edu L-I-N-K-S http://fast.faa.gov/pricing/98-30-c5.htm#Published%20Price%20Comparison http://www.cmu.edu/procurementservices/FacultyStaff/CardholderGuide/forms/ PriceReasonableness.pdf http://www.whitehouse.gov/omb/circulars/a110/a110.html#45 6 EDUCATIONAL PROCUREMENT JOURNAL www.naepnet.org | March 2008 http://fast.faa.gov/pricing/98-30-c5.htm#Published%20Price%20Comparison http://www.cmu.edu/procurementservices/FacultyStaff/CardholderGuide/forms/PriceReasonableness.pdf http://www.cmu.edu/procurementservices/FacultyStaff/CardholderGuide/forms/PriceReasonableness.pdf http://www.whitehouse.gov/omb/circulars/a110/a110.html#45 http://www.naepnet.org
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