When is a 'fair and reasonable price' determination required, and how is it made?

The contracting officer must determine that a price is fair and reasonable for every federal acquisition, regardless of dollar value or whether it is a set-aside or full and open competition. FAR Part 15.4, Contract Pricing, governs this determination. For services, the CO considers multiple factors, including competition, historical pricing, market research, and independent government cost estimates.

When a solicitation receives adequate price competition, the prices received are presumed to be fair and reasonable. If competition is not adequate, the CO will analyze proposed prices against other offers, previous contract prices, or published price lists. For a time-and-materials contract, the CO also scrutinizes the fixed hourly rates for direct labor, overhead, general and administrative expenses, and profit, as well as the cost of materials. For state and local contracts, the specific requirements for price reasonableness are detailed in the state's procurement code and the relevant portal's vendor guide.