How does 'cost realism' differ from 'price reasonableness' in federal proposal evaluations?

Cost realism for a cost-reimbursement contract assesses whether your proposed costs are realistic for the work, while price reasonableness for a firm-fixed-price contract ensures the final price is fair to the government.

On cost-reimbursement deals, the government bears the risk if your actual costs are higher than estimated, so the contracting officer needs to know you understand the true cost of doing the work. This means they're digging into your proposed labor hours, labor rates, and other direct costs to see if they're consistent with your technical approach, your proposed staffing, and what they know about the market. For example, if you propose a low number of hours for a complex task, the CO might question the realism of that cost. They're trying to avoid surprises down the road, where you run out of money because your initial estimate was too low.

For a firm fixed price (FFP) contract, the risk is on you, the contractor. The government just wants to make sure the final price they're paying is fair, given market conditions and the scope of work. They aren't going to audit your internal cost structure in the same way. This is why cost realism is critical for cost-reimbursement contracts, as described in FAR 15.404-1(d), to ensure the government isn't signing up for an unrealistic financial burden.