Price Evaluation

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The April issue of National Defense Magazine brought a well-written article by Susan Cassidy and her colleagues at Covington & Burling LLP on a recent DOD IG report analyzing (and criticizing) spare aviation parts pricing, even though the report concluded that the contractor in question had complied with the Truthful Cost or Pricing Data Act. The article addresses the IG’s concept of a fair profit – which is abjectly divorced from reality – and it notes that the GAO has been conducting a study of spare parts purchasing with a promise of recommendations to improve transparency in this area. I commend the article to anyone who operates in the spares market and wants to know where the Government is heading in relation to spares pricing.

With the IG and the GAO injecting themselves – yet again – into the spare parts market and decrying the rapacious contractors who dare to sell at prices that the Government regards as outrageous (after all, why in the world would anyone think that a profit rate in excess of 15% on a firm fixed price contract was reasonable?) it seems like a good time to revisit the reasons why the Government’s periodic complaints about spare parts pricing are generally myopic and wrong. And so, because no criticism of Government contractors ever goes away forever, I offer for your consumption a refresher: the re-publication of a posting that I authored in November 2014, entitled “How Dare You Charge That for a Spare Part!” – The Untold Story of the X27 Interface Assembly” –
Continue Reading Resurrecting the Spare Parts Bogeyman – A Refresher on Why the Government Gets It Wrong

The pricing of spare parts has been a subject of Government criticism for decades.  Pick up any DCAA or IG audit report relating to spare parts or any intra-agency memorandum on the topic and you will sense the dudgeon with which the Government reacts to the prices of those parts.
Continue Reading “How Dare You Charge That for a Spare Part!” – The Untold Story of the X27 Interface Assembly

On November 13, 2013, GAO reaffirmed its view that normalization of costs is impermissible in acquisitions where offerors’ approaches are not required to be the same. In AXIS Management Group LLC, B-408575 (Nov. 13, 2013), the Department of the Interior’s (“the Agency”) decision to normalize offerors’ labor hours and labor mixes was found to be unreasonable because the Agency ignored the unique approach proposed by each of the offerors.  The acquisition sought laboratory operational support at the National Water Quality Laboratory (“NWQL”) using an indefinitely delivery, indefinite quantity contract.  Technical merit was identified as significantly more important that the total evaluated price.  Offerors’ price proposals were to consist of unit prices for two contract line items, one for front desk support and the other for information technology support, and to provide proposed “labor categories, number of hours and hourly rates for three CLINS: (1) laboratory support, (2) support services support, and (3) quality assurance labor categories,” and to ensure that they priced all of the task descriptions identified in the Solicitation.  Historical staffing levels, but not staffing estimated or annual labor hour requirements, were disclosed in the Solicitation.  The historical information identified staffing for only 12 of the 26 identified labor categories.
Continue Reading Equal Doesn’t Always Mean Fair