Cost-Based Pricing

Preface

Cost-based pricing refers to the practice of estimating prices based on estimated cost plus a reasonable profit, as opposed to estimating a price based on the value received and other market circumstances. In government contracting, this distinction is significant, in that most government personnel and most regulations greatly favor using cost-based pricing. Cost-based pricing is necessitated by the government’s inability to purchase all needed goods and services in a commercial market. Until World War I, the government could purchase everything it needed in a commercial pricing environment; the advent of complex weapon systems not for sale in a commercial market required a cost-based pricing approach.

This book is intended to be used ...