Price Reasonableness Documentation Guide 2025: Federal Contracting
Learn how to document price reasonableness for government proposals. Understand FAR requirements, support fair pricing, and avoid audit issues.
Quick Answer: What is Price Reasonableness?
Price reasonableness means your proposed price is fair and in line with what a prudent buyer would pay. The government must determine that prices are reasonable before award. You support this by providing competitive quotes, historical data, market analysis, or in some cases certified cost data.
What is Price Reasonableness?
The government evaluates price reasonableness for every contract:
FAR Definition
“A price is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.” — FAR 31.201-3
Why It Matters to You
- • Required for contract award
- • Affects negotiations
- • Subject to audit later
- • Impacts profit allowability
- • Basis for option pricing
Government Perspective
- • Stewardship of taxpayer funds
- • Fair and open competition
- • Audit trail requirements
- • CO accountability for pricing
- • Defense against protests
Types of Price Documentation
Documentation requirements depend on contract type and value:
Documentation Hierarchy
Adequate Price Competition
Two or more responsible offerors competing independently establishes price reasonableness. Minimum documentation needed.
Data Other Than Certified
Historical prices, market data, independent estimates, catalog prices. No certification required but must be accurate.
Certified Cost or Pricing Data
Required for non-competitive contracts over $2M (TINA threshold). Data must be accurate, complete, and current. Certification required.
Price Analysis Techniques
Support your pricing with these analysis methods:
Competitive Comparison
Compare your price to competitors.
- • Other proposals received
- • Previous competitive awards
- • Published price lists
- • Market research data
Historical Comparison
Compare to prior purchases.
- • Previous contract prices
- • Trend analysis over time
- • Volume adjustments
- • Inflation factors
Parametric Analysis
Use cost estimating relationships.
- • Cost per square foot
- • Cost per unit metrics
- • Industry benchmarks
- • Regression analysis
Independent Estimate
Government develops own estimate.
- • IGCE comparison
- • Third-party estimates
- • Technical evaluation input
- • Should-cost analysis
Certified Cost or Pricing Data
When competition is inadequate and value exceeds thresholds:
TINA Requirements
When Required
Negotiated contracts over $2M without adequate competition or established catalog/market prices. Modifications over thresholds.
What Must Be Disclosed
All facts that prudent buyers/sellers would expect to significantly affect price negotiations. Accurate, complete, and current as of agreement on price.
Certification
Executive must certify data is accurate, complete, and current. False certification has serious consequences including price reduction and potential fraud charges.
Defective Pricing Risk
If data submitted is found to be inaccurate, incomplete, or not current, the government can reduce contract price by the amount of overpricing. Maintain thorough records and update pricing data through negotiations.
Documentation Best Practices
Document Your Basis of Estimate
For each cost element, document how you developed the estimate. Keep vendor quotes, labor calculations, historical data references, and any assumptions.
Maintain Subcontractor Quotes
Keep all subcontractor and vendor quotes received. Document which quotes you used and why. This is critical backup for audits.
Track Rate Development
Document how you calculated labor rates, overhead rates, and profit. Maintain current approved rate structures with supporting data.
Update Through Negotiations
If costs change during negotiations, update your data and notify the CO. Failure to disclose changed costs is defective pricing.
Documentation Checklist
- ☑ Detailed cost breakdown
- ☑ Labor hour calculations
- ☑ Rate support documentation
- ☑ Subcontractor quotes
- ☑ Material pricing backup
- ☑ Historical data references
- ☑ Make-or-buy decisions
- ☑ Profit/fee rationale
- ☑ Assumptions documented
- ☑ Market analysis
Common Issues to Avoid
Documentation Failures
- ✗ No backup for estimates
- ✗ Missing subcontractor quotes
- ✗ Undocumented assumptions
- ✗ Stale or outdated data
- ✗ Incomplete rate support
Pricing Errors
- ✗ Using expired quotes
- ✗ Not updating during negotiations
- ✗ Inconsistent rates across proposals
- ✗ Unsupported contingencies
- ✗ Excessive unallocated reserves
Audit-Ready Mindset
Assume every proposal will be audited. If you cannot explain and support a cost element three years later, you should not include it. Build your documentation as if DCAA is watching — because they may be.
Frequently Asked Questions
Do I always need to provide cost data?
No. In competitive procurements with adequate competition, price analysis is usually sufficient. Certified cost data is typically only required for sole-source or inadequately competitive situations over the TINA threshold.
What if my costs change after proposal submission?
You must disclose cost changes through negotiations if submitting certified data. Notify the CO of any changes that would affect pricing decisions. Failure to disclose is defective pricing.
How long should I keep pricing records?
Typically 3 years after final payment. For certified cost data, longer retention may be prudent. DCAA can audit years after award. Consult your contract and accounting policies.
Can I use rough estimates?
For competitive bids with adequate competition, more flexibility exists. For certified data, rough estimates without support create audit risk. Document your basis even for engineering estimates.
Price Competitively and Win
BidFinds helps you discover contracts where your pricing is competitive. Find the right opportunities for your capabilities.
Start Finding Bids→Ready to Find Your Next Contract?
Get instant access to thousands of government construction bids with our AI-powered platform.
Get Started