Cost-Based Pricing

CHAPTER 1

Pricing Concepts

The pricing method preferred by the Federal Acquisition Regulation (FAR) is cost-based—in other words, the detailed, grassroots, or bottom-up approach. This method segregates activities with costs into their smallest component tasks, which are then supported with details such as bills of materials, hours (based on history), or work-measurement standards and rates based on historical rates. Price proposals based on cost estimates require an evaluation by the government customer—in the Department of Defense (DoD), by either the Defense Contract Audit Agency (DCAA) or the Defense Contract Management Agency (DCMA). Government evaluations of price proposals are frequently referred to as audits and are based on the FAR—Part ...