Sec. 21.05.03.05. Price Negotiation Policies and Techniques

A. Scope. This regulation sets forth the price negotiation policies and techniques applicable to negotiated prime contracts and modification to all types of prime contracts and to subcontracts which are subject to approval or review.

B. Basic Policy. It is the policy of the State to procure from responsible sources at fair and reasonable prices calculated to result in the lowest ultimate overall cost to the State.

C. Type of Contract. The selection of an appropriate contract type and the negotiation of prices are related and should be considered together. The circumstances which lead to the selection of a given type of contract at the outset may frequently change, resulting in a different type of contract being more appropriate during later periods.

D. Objective of Negotiations. Complete agreement of the parties on all basic issues shall be the objective of the negotiations. Except as provided in Regulation .02A(4), discussions shall be conducted with qualified offerors to the extent necessary to resolve uncertainties relating to the procurement, including the proposed price.

E. Pricing Techniques.

(1) General.

(a) This section describes the principal price and cost evaluation techniques and the circumstances under which each may be used. They are equally applicable to initial and subsequent price negotiations.

(b) "Adequate price competition" means competition between two or more responsible offerors that submitted proposals initially classified by the procurement officer under Regulation .03B as reasonably susceptible of being selected for award.

(2) Requirements for Price or Cost Analysis.

(a) General. A price or cost analysis should be performed in connection with every negotiated procurement. Cost analysis shall be performed in accordance with §E(2)(c) when cost or pricing data is required to be submitted. Price analysis shall be used in all other instances to determine the reasonableness of the proposed contract price. Price analysis also may be useful in corroborating the overall reasonableness of a proposed price when the determination of reasonableness was developed through cost analysis.

(b) "Price analysis" is the process of examining and evaluating a prospective price with or without evaluation of the separate cost elements and proposed profit of the individual offeror whose price is being evaluated.

(c) "Cost analysis" is the review and evaluation of a contractor's cost or pricing data and of the judgmental factors applied in projecting cost or pricing data to the estimated costs, which shall allow the formation of an opinion as to the degree to which the contractor's proposed costs represent what performance of the contract should cost, assuming reasonable economy and efficiency.

(3) Cost or Pricing Data.

(a) The requirements of this subsection need not be applied if the procurement officer determines that the price negotiated is based on:

(i) Adequate price competition;

(ii) Established catalog or market prices of commercial items sold in substantial quantities to the general public; or

(iii) Prices set by law or regulation.

(b) The procurement officer shall require the offeror or contractor, as the case may be, to submit written cost or pricing information or to specifically identify such in writing if actual submission of the data is impracticable, and to certify that, to the best of the offeror's or contractor's knowledge and belief, the cost or pricing data submitted or identified was accurate, complete and current before:

(i) The award of any negotiated contract expected to exceed $100,000 in amount or a smaller amount set by the procurement officer; or

(ii) The pricing of any modification to any formally advertised or negotiated contract, whether or not cost or pricing data was required in connection with the initial pricing of the contract, when the modification involves an aggregate increase or decrease in costs, plus applicable profits, expected to exceed $100,000.

(c) Certification of Current Cost or Pricing Data. When required, certification as contemplated by COMAR 21.06.04.01 shall be included in the contract file together with the documents supporting the negotiation.

(d) Defective Cost or Pricing Data. If the certified cost or pricing data is subsequently found to have been inaccurate, incomplete, or noncurrent as of the effective date of the certificate, the State shall be entitled to adjustment of the negotiated price, including profit or fee, to exclude any sum by which the contract price was increased because of the defective data.

(4) Evaluation and Pricing of Individual Contracts. Each contract shall be priced separately and independently, and no consideration shall be given to losses or profits realized or anticipated in the performance of other contracts. This prohibition neither prevents the negotiation of fixed overhead and other rates applicable to several contracts during annual or other specific periods nor prohibits forward pricing agreements applicable to several contracts. A proposed price reduction under another contract or other contracts may not be used as an evaluation factor.

(5) Subcontracting Considerations in Cost Analysis. The procurement officer shall, when appropriate, solicit from the offeror or contractor information concerning:

(a) Purchasing practices;

(b) The principal components to be subcontracted and the contemplated subcontractors, including:

(i) The degree of competition obtained,

(ii) Cost or price analysis or price comparisons accomplished, including accurate, complete, and current cost or pricing data, and

(iii) The extent of subcontract supervision;

(c) The types of subcontracts;

(d) The estimated total extent of subcontracting, including procurement of purchased parts and materials.

(6) Sole Source Items. When purchases of standard commercial or modified standard commercial items are to be made from sole source suppliers, negotiations shall be based on the contractor's price lists and discount or rebate arrangements and conducted on the basis of "most favored customer" or similar practices.

F. Profit or Fee. The procurement officer, in determining profit or fee, shall follow established policy of the procurement agency or shall give consideration to:

(1) Effect of competition;

(2) Degree of risk;

(3) Nature of work to be performed;

(4) Extent of State assistance;

(5) Extent of the contractor's investment;

(6) Credibility of estimates;

(7) Character of contractor's business;

(8) Contractor's performance; and

(9) Subcontracting.