Don’t Forget to Perform Price Analysis on Your Subcontractors

Most prime contractors include one or more subcontractors in their proposals to the government. Solicitations issued pursuant to FAR Part 15, 15.404-3(b) require the prime contractor to conduct cost and price analyses to establish the reasonableness of the proposed subcontractor prices and to include the results of these analyses in the cost proposal. Even if the subcontractor has included their proprietary cost or pricing data in a “sealed package” for audit by the government, the prime contractor is still required to conduct price analyses.

Unfortunately, some prime contractors are unaware of this requirement. Historically, the Defense Contract Audit Agency (DCAA) would deem proposals that lacked the required cost and price analysis as inadequate and would delay the audit until the time that the cost or price analysis was provided. Contractors that submit an inadequate proposal delay the already lengthy procurement process, make a bad impression with the customer and lessen their chance for an award.

Fortunately, per DCAA’s latest Memorandum for Regional Directors, “Audit Alert on Requirement for Prime Contractor Cost and Price Analyses,” proposals that lack cost and price analysis for the subcontractor rates will no longer be deemed inadequate. Rather, DCAA will proceed with the audit while giving the prime contractor time to submit the cost and price analysis. If the cost and price analysis is not provided by completion of the audit, the audit report will state the subcontractor costs are unsupported.  The Contracting Officer will have a difficult time awarding a contract in response to a proposal with a material amount of unsupported costs.

Therefore, prime contractors must ensure their cost proposals contain the required cost and price analysis. Ideally, the cost and price analysis should be included with the original cost proposal.  Price analysis, which determines the reasonableness of the bottom line price, is always the responsibility of the prime contractor. Cost analysis may be performed by the prime contractor, the government audit agency or a third-party CPA firm depending on the circumstances.

Contact Aprio’s Government Contracting team for help with performing cost and price analyses.