# DLAD PGI PART 15 – CONTRACTING BY NEGOTIATION

- DLAD PGI PART 15 – CONTRACTING BY NEGOTIATION

- PGI SUBPART 15.3 – SOURCE SELECTION

- PGI 15.304-90 Automated systems supporting contractor past performance evaluation.

- PGI SUBPART 15.4 – CONTRACT PRICING

- PGI 15.402-90 Instructions for completing form “reporting requirements for purchases from exclusive distributors/dealers”.
- PGI 15.402-91 Procedures for performing price analysis on commercial catalogs to be added to DoD EMALL.
- PGI 15.402-92 Acquisitions for sole-source items subject to limited competition.
- PGI 15.404-1(c)(91) One pass pricing.
- PGI 15.406-1 Prenegotiation objectives.
- PGI 15.406-3 Documenting the negotiation.
- PGI 15.408-90(c) Quarterly reporting requirement.

DLAD PGI PART 15 – CONTRACTING BY NEGOTIATION

PGI SUBPART 15.3 – SOURCE SELECTION

PGI 15.304-90 Automated systems supporting contractor past performance evaluation.

(a) Scope. This subsection prescribes the mandatory procedures, guidance, and instructions for evaluation of contractor past performance as an evaluation factor in manually evaluated negotiated best value acquisitions for DLA Land and Maritime, DLA Aviation, and DLA Troop Support construction and equipment supply chains.

(b) Definitions.

(1) “Score(s)” as used in this subsection refer to ABVS assessments of a contractor’s delivery and quality performance on DLA contracts.

(2) “Classification(s)” as used in this subsection refer to the PPIRS-SR assessment of a contractor’s delivery and quality performance on past DoD contracts, including DLA contracts.

(i) Classifications are comprised of a delivery score and a quality color ranking.

(c) General past performance information.

(1) When used in best value source selections, past performance information, including scores/classifications will be evaluated based upon a comparative assessment among contractors from which quotes/offers were received.

(2) Contracting officers are advised not to rely solely on the performance score/classifications, and should consider reviewing the data used to construct the performance score if the circumstances of the procurement dictate (e.g., significant price differential or close past performance assessments).

(3) Contracting officers may wish to consider the following during the trade-off decision:

(i) item designation as a weapon-system or personnel support item;

(ii) inventory supply status and required delivery schedule;

(iii) limited sources of supply and industrial base concerns;

(iv) dollar difference between the low technically acceptable quoter/offeror and a higher-priced, higher scored quoter/offeror, and the presence of new quoters/offerors.

(4) Past performance information used in source selection is confidential source selection information during the month in which it is effective, and as such, is protected from release under the procurement integrity rules (see FAR 3.104-4 and 3.104-5). The information is available only to the business entity to which it applies. The past performance information used in the source selection process must carry a restrictive legend substantially the same as the following: “Confidential Contractor Information – for Official Use Only.” This legend must appear on all hard-copy printouts. Release of past performance information to any other Governmental entity must have the concurrence of the local counsel. Release to any other private entity shall be strictly limited, have the concurrence of the local counsel, and be in accordance with Freedom of Information Act (FOIA), 5 U.S.C. 552, guidelines (see FAR Subpart 24.2, Freedom of Information Act, and DFARS 224.2, Freedom of Information Act). Any FOIA decision to release performance data to other contractors will be made on a case-by-case basis.

(d) Automated best value system (ABVS).

(1) ABVS is a computerized system that collects a contractor’s existing past performance data and translates it into a numeric score. The contracting officer then uses the score as an additional evaluation factor when making best value award decisions.

(2) ABVS scores:

(i) Contractors receive DLA-assigned ABVS scores for their past performance in each federal supply class (FSC scores). The FSC scores are based on DLA consolidated performance history. A contractor may have multiple FSC scores but will have only one DLA score, which is a compilation of the contractor’s FSC scores for all business conducted with DLA.

(ii) The ABVS score is a combination of a vendor's delivery and quality scores, and the scores range from zero to a perfect score of 100. If a vendor's score is less than 100, DLA provides the contractor the negative data upon which its score is based.

(iii) Scores are calculated daily based upon two years of data.

(iv) Delivery scores are comprised of and calculated as follows:

Delivery delinquencies

- Number

- Severity

- Contractor caused terminations, cancellations, and withdrawals

Formulas for Delivery Performance
Formula | Legend
DS = (OW*OS) + (AW*AS) | DS = Delivery score OW = On-time weight OS = On-time score AW = Average days late weight AS = Average days late score
OS = 100*O/L | OS = On-time score O = Number of line shipped on-time during rating period L = Number of line shipped during rating period
AS = greater of ((100-(D/L)) or 0) | AS = Average days late score (AS range is 0 to 100) D = Total days late during rating period L = Number of line shipped during rating period Delivery scores are derived from two sub-factors, percent on time and average days late. The relative weights of those factors are set at 0.6 and 0.4, respectively.

For administrative purposes, the delivery rating period excludes the most recent 60 days. For ABVS purposes, delinquent lines represent shipments not shipped and/or received in their entirety by the contract delivery date (CDD). Contractor caused delivery extensions, regardless of consideration paid, will be reflected in the delivery score.

(v) Quality scores are comprised of and calculated as follows:

- Quality complaints,

- Product nonconformances, and

- Packaging nonconformances.

Formulas for quality performance
Formula | Legend
QS = (PRW*PRS) + (PAW*PAS) | QS = Quality score PRW = Product weight PRS = Product score PAW = Packaging weight PAS = Packaging score
PRS = 100*(1-(PRC/L)) | PRS = Product score PRC = Number of product complaints during rating period L = Number of lines shipped during rating period
PAS = 100*(1-(PAC/L)) | PAS = Packaging score PAC = Number of packaging complaints during rating period Quality scores are derived from two sub-factors, product complaints and packaging complaints. The relative weights of those factors are set at 0.8 and 0.2, respectively. Contractors having no data in the rating period are assigned scores of 999.9.

For administrative purposes, the quality rating period excludes the most recent 30 days. Repair, replacement, or reimbursement of quality and packaging defects will not provide relief of negative ABVS data.

Note: The above 60 and 30 day offset periods are not grace periods. Contractor caused discrepancies or delinquencies will be reflected in the ABVS as an indicator of past performance.

(3) Data Challenges. DLA will make negative quality and delivery data reflected in the ABVS score available to contractors daily via the ABVS Website. The contractor’s negative performance data will be posted before it is reflected in the ABVS score (preview period), to give contractors an opportunity to review and verify data. A contractor must challenge any negative data within the preview period to assure corrections are posted before calculation of the score. Contractors must submit challenges and substantiating evidence (e.g. invoices, DD Form 250s, modifications) to the ABVS administrator. The "center" field will identify the appropriate focal point.

For those identified as "DLA Aviation," send challenges to:

DLA Aviation

Attention: BPSC (ABVS)

8000 Jefferson-Davis Highway

Richmond, Virginia 23297-5516

Telephone: (804) 279-6431

Fax : (804) 279-5042

For those identified as “DLA Land and Maritime,” send challenges to:

DLA Land and Maritime

Attention: BPSF (ABVS)

Post office box 3990

Columbus, Ohio 43218-3990

Telephone numbers: (614) 692-1381 or (614) 692-3383

Fax: (614) 692-4170

For those identified as “DLA Troop Support,” send challenges to:

DLA Troop Support

Attention: BPSA (ABVS)

700 Robbins Avenue

Philadelphia, Pennsylvania 19111-5096

Phone: (215) 737-7844

Fax: (215) 737-7949

Note: The ABVS administrator shall make every effort to resolve data challenges within ten working days. If the contractor and the ABVS administrator can not arrive at a mutual agreement on challenged data, it becomes disputed data. Disputes which cannot be resolved will be elevated. Authority for resolution of disputed data is one level above the contracting officer. Award decisions resulting from reliance on disputed data must also be approved one level above the contracting officer.

For further details concerning ABVS Score calculations and contractor data challenge procedures, refer to the ABVS website at http://www.dscr.dla.mil/UserWeb/proc/ABVM/Abvm.htm

(e) Past performance information retrieval system – statistical reporting (PPIRS-SR).

(1) PPIRS-SR is a web-enabled, government-wide application that collects quantifiable delivery and quality contractor past performance information from Federal contracting activities.

(2) PPIRS-SR classifications:

(i) PPIRS-SR classifications are established on a Federal supply classification (FSC) basis.

(ii) Classifications are calculated monthly based upon three years of data.

(iii) Delivery performance is based on the total number of contract line items received and the percent of contract line items with on-time deliveries. Late deliveries have an added weight assessed based upon days late (shown in below table).

Formulas for Delivery Performance
Formula | Inputs
Days Late: | Late Delivery Weight:
((1-(Total Weight for Late Deliveries / Total Line Item Number)) X 100) | 6-30 days late | 1
31-60 days late | 1.5
61-90 days late | 2
> 90 days late | 2.5

(iv) Quality performance formula follows:

(Positive weighted data minus negative weighted data) / Contract FSC Line Item Total

Contractor quality performance is based on a comparison among all contractors within an FSC. Contractors will be grouped by color, representing their ranking within the FSC.

Color rankings are shown in below table:

Color | Percent Group
Dark Blue | High Five Percent
Purple | Next 10 Percent
Green | Next 70 Percent
Yellow | Next 10 Percent
Red | Last Five Percent

NOTE: If there is only one percentage group for an entire FSC, the group will be classified as green.

Quality performance records to be used and the weight factors for each:

Record | Service | Positive Weight | Negative Weight
Bulletins | Navy | N/A | -1.0 (Red) - 0.7 (Yellow)
DCMA CAR Records (Level III and IV Corrective Actions – formerly Method C/D) | DCMA | N/A | -1.0 (Level 4) -0.7 (Level 3)
DLA Quality Records Depot New Contract Def (doc type 9) Direct Vendor Delivery Def (doc type 6) Medical (doc type B, C and D) | DLA | N/A N/A N/A | - 0.4 - 0.4 - 1.0
GIDEP Alerts | All | N/A | -1.0 (critical) -0.7 (major) -0.2 (minor)
* Lab Tests (Doc Type 4) | DLA | +.2/ +1 | -1.0 (critical) -0.7 (major) -0.1 (min)
Material Inspection Records (MIRs) | Navy | + 1 | -1.0 (critical) -0.7 (major) -0.2 (min)
PQDRs - Category 1 (DLA Doc Type 0) | ALL | N/A | -1.0 (Cat 1 or Doc Type 0) -0.7 (Cat 2 or Doc Type 1) -0.2 (Info)
Surveys (excluding Pre-Award Surveys) | DCMA and Navy | +0.7 | -0.7 (others)
Test Reports (1st Article, Production, etc) | Navy | +0.5 | -0.5

For further details concerning PPIRS-SR classification calculations and contractor data challenge procedures, please refer to the PPIRS-SR procedural guide for application development at: http://www.ppirs.gov/ppirs-sr/ppirssrmanual102004.pdf.

(f) Past performance assessments in ABVS and PPIRS-SR.

(1) ABVS past performance assessments are displayed as scores. Delivery and quality scores are represented numerically on a 100-point scale, with 100 being a perfect score. These scores are displayed on the “Choose Awardee” screen in the DLA Preaward Contracting System (DPACS) for all entered quotes/offers.

(i) Evaluation of past performance is straightforward. Higher numerical scores represent high past performance assessments and lower associated risk. Lower numerical scores indicate low past performance assessments and higher risk. Contracting Officers may make comparative assessments of past performance simply by taking into account the numerical difference between individual scores and the number of contract lines those scores are based upon.

(ii) If a contractor’s ABVS FSC score is being challenged, indicated by a “C” on the “Choose Awardee” screen, Contracting Officers may wish to consult the ABVS site administrator to assess the magnitude of the challenge and its impact on the contractor’s score.

(2) PPIRS-SR past performance assessments are displayed as classifications. Delivery is represented numerically on a 100-point scale, 100 being perfect. Quality assessments, however, are based upon a color-coded, percentile ranking of comparative scores among all contractors with award information for the subject FSC.

Note: Access to PPIRS-SR classifications is accomplished through the PPIRS-SR website: http://www.ppirs.gov/ppirs-sr/ppirssr.htm. Contractor classifications may be reviewed and analyzed utilizing the “Solicitation Inquiry” report.

(i) As with ABVS, PPIRS-SR delivery assessments are presented as a numerical score ranging from 1 (low) to 100 (high). High numbers represent high on-time delivery performance. Lower numbers equate to low on-time deliveries.

(ii) Quality assessments are ranked only for contractors in which inspection records are present for the subject FSC. This is a significant departure from the quality methodology employed by DLA through ABVS. In ABVS, contractors with award history are presumed to demonstrate satisfactory quality, unless discrepant records are received. Conversely, PPIRS-SR only assesses quality for awards in which Government inspection records are required and received. If inspection is not required, the award is not counted in the contractor’s quality assessment.

Note: Contractors with delivery records but no quality records for an FSC are ranked in the “green” color ranking. Additionally, when no quality records exist for a contractor within an FSC, an asterisk (*) will be displayed in the “quality score” column on the “solicitation inquiry report”.

(iii) Because there are occasions when contractors having no quality records may ultimately demonstrate better quality and less performance risk than a contractor in a higher percentile group (“dark blue” and “purple”), absence of quality records does not preclude award to a contractor.

(g) Evaluation using ABVS scores and PPIRS-SR classifications.

(1) The contracting officer will first evaluate contractors using their ABVS scores for the solicited FSC in effect at the time of evaluation. The contracting officer will use a contractor’s DLA score to evaluate a contractor without an FSC score for that particular FSC. The contracting officer may consider the volume of business on which the FSC score is based as a measure of confidence in the score’s indication of performance risk. The contracting officer may choose to use the DLA score if the volume of business would tend to make the FSC-specific score an inadequate indicator of performance risk. The contracting officer also may use the DLA score if the FSC scores among contractors are relatively equal. For non-NSN items, the contracting officer will evaluate using a contractor’s DLA score in effect at the time of evaluation. Contractors with no performance history will not be evaluated favorably or unfavorably and will be assigned a “999.9” in ABVS. A “999.9” is used to designate those instances wherein the contractor has no past performance history, has no history for the particular FSC or has no history for the timeframe being rated.

(2) In order for the Government to assess performance risk, if the quoter/offeror having the lowest evaluated price also has an ABVS FSC score below 70 and would potentially be bypassed under best value in favor of a higher priced quoter/offeror with a higher ABVS FSC score, then past performance evaluation will be accomplished using PPIRS-SR, in lieu of ABVS, for all quotes/offers received.

(3) Evaluation of PPIRS-SR delivery assessments will be based upon a contractor’s score on a numerical scale ranging from 1 (low) to 100 (high). High numbers represent high on-time delivery performance. Lower numbers equate to lower on-time deliveries. A ‘0’ (zero) score with ‘0’ (zero) lines is used to designate those instances wherein the contractor has no history for the particular FSC being rated.

(4) In PPIRS-SR, Contractor quality will be assessed based upon color/percentile groups. Contractor quality assessments will be evaluated as follows:

Dark blue assessments will be evaluated more favorably than Purple assessments;

Purple assessments will be evaluated more favorably than Green assessments;

Green assessments will be evaluated more favorably than Yellow assessments; and,

Yellow assessments will be evaluated more favorably than Red assessments

(5) Contractors with delivery records but no quality records for an FSC are ranked in the “Green” color ranking. Additionally, when no quality records exist for a contractor within an FSC, an asterisk (*) will be displayed instead of an actual quality score. Contractors with delivery records but without quality records will be evaluated as having no negative quality records within the PPIRS-SR.

(6) In the case of a contractor without a record of relevant past performance or for whom information on past performance is not available in the PPIRS-SR, the contractor will be evaluated neither favorably nor unfavorably on past performance.

(h) Award Justification.

(1) Contract files must be documented with the rationale supporting all award decisions. The award decision must demonstrate how paying more than low price reduces performance risk. The award justification must be commensurate with the price difference between the awardee and the low quote/offer, i.e., the greater the difference in price, the stronger the award justification importance.

(2) For ABVS and PPIRS-SR awards, justification templates are available in DPACS to assist in file documentation. Choose the award justification template that most closely represents the particulars of the current award and enter requested information. These forms may be supplemented with additional information, as necessary.

PGI SUBPART 15.4 – CONTRACT PRICING

PGI 15.402-90 Instructions for completing form “reporting requirements for purchases from exclusive distributors/dealers”.

(a) The form “reporting requirement for purchases from exclusive distributors/dealers” which has been loaded into DPACS for completion by the contracting officer will include the following information:

(1) Contractor name and DUNS number (exclusive/distributor/dealer);

(2) Subcontractor name and DUNS number (e.g., OEM/actual manufacturer);

(3) Contract number, modification or order number if applicable;

(4) Date and amount of the contract action;

(5) Steps taken to attempt price analysis without requiring cost-type data;

(6) Contractor’s rationale for refusing to provide the data;

(7) Actions taken by the contracting activity to obtain the data;

(8) Data used to determine price reasonableness and the resulting determination; and,

(9) Actions planned to avoid this situation in the future.

(b) DLA contracting activities will report this information on a quarterly basis by January 30 for October 1 – December 31 actions; April 30 for January 1 – March 31 actions; July 30 for April 1 – June 30 actions; and October 30 for July 1 - September 30 actions. J73 will ensure the completeness of the form and submit results through J7 to DPAP by March 15 for October 1 – December 30 actions; June 15 for January 1 – March 31 actions; September 15 for April 1 – June 30 actions and December 15 for July 1 – September 30 actions.

PGI 15.402-91 Procedures for performing price analysis on commercial catalogs to be added to DoD EMALL.

The contracting officer shall use the procedures below as applicable when adding a new commercial catalog to DoD EMALL, adding additional items to existing catalogs, or renewal of such a catalog.

(a) The offeror should provide unit prices for all catalog items in an electronic format that can be sorted in Excel from high to low dollar amounts.

(b) The offeror must describe the basis or methodology for determining how prices in their catalog were established. This information may include, for example, evidence of prices on a GSA schedule held by the contractor, evidence of commercial sales at the prices quoted, invoices from suppliers, and the overhead and profit factors added by the contractor to derive the catalog price. This information will be reviewed and discussed in the price negotiation memorandum.

(c) If the proposed catalog is extremely voluminous, consider requesting the vendor to separate it into manageable segments and award the segments separately.

Type of EMALL Commercial Catalog Contract | Pre-award Price Reasonableness Determination | Post-Award Price Reasonableness Determination
New Catalog | For items selected for 100% review using stratification, the contracting officer will perform price analysis using the techniques in FAR 15.404-1(b) to determine the price reasonableness of each item evaluated. For any item selected for 100% review where the contracting officer is unable to determine that the price is fair and reasonable, the item will be prohibited from being ordered, until either the vendor revises the offered price to a fair and reasonable price or adequately justifies to the contracting officer’s satisfaction that the price is fair and reasonable. The contracting officer shall select a statistically valid sample of remaining catalog items (using DCAA EZ Quant software) and perform price analysis on the items in the sample using techniques listed at FAR 15.404-1(b) to determine general reasonableness of the catalog prices. The sample should be selected to produce a 95% confidence level with a presumed error rate of 10%. The random number feature of DCAA EZ-Quant software shall be used to ensure that no personal bias or subjective consideration is used in selection of the catalog items to be evaluated. The EZ-Quant physical unit sample selection option shall be used to select a physical unit sample. The EZ-Quant dollar unit sample selection option shall be used to select a dollar unit sample. | The contracting officer will perform a post award review of those items which are being ordered by EMALL customers in large dollar amounts (i.e., more than $25,000 in a fiscal year), and that were not selected for review during the pre-award sampling process. This procedure shall be supplemented by performing a statistical analysis similar to that performed in the pre-award phase for other items not examined during the pre-award sampling process.
New Catalog | When selecting items for comparison or developing the aggregate comparison price the contracting officer shall first use the price analysis techniques discussed in FAR 15.404-1(b). These include: (i) Comparison of proposed prices received on the solicitation such as catalogs for similar items. (ii) Comparison of previously proposed prices and previous Government and commercial contract prices for the same or similar items, (if both the validity of the comparison and the reasonableness of the previous price(s) can be established. (iii) Use of parametric estimating methods/application of rough yardsticks (such as dollars per pound, or per horsepower, or other units) to highlight significant inconsistencies that warrant additional pricing inquiry) (iv) Comparison with competitive published price lists, published market prices of commodities, and similar indexes). (v) Comparison of proposed prices with Independent Government Cost Estimate (IGCE). (vi) Comparison of proposed prices with prices obtained through market research for the same or similar item. If none of these price analysis techniques provides an adequate comparison then the contracting officer shall request other than certified cost and price data and perform cost analysis using techniques discussed in FAR 15.404-1(c). If the comparison reveals that the vendor’s total proposed aggregate price (for all items in the statistical sample) to be less than the total aggregate price that the contracting officer’s (CO) used in their price reasonableness comparison (for the same or similar items) then no action needs to be taken on the universe of items not selected for review. However, the contracting officer needs to take action on any individual item in the statistical sample exceeding the CO’s determination of fair and reasonable prices as outlined below. If the comparison reveals that the vendor’s total proposed aggregate price (for all items in the statistical sample) exceeds the total aggregate price that the contracting officer’s (CO) used in their price reasonableness comparison (for the same or similar items) then the CO will negotiate a reduction to the entire universe of items. The CO will also address any individual items exceeding the CO’s determination of fair and reasonable pricing as outlined below. For any item in the catalog where the contracting officer is unable to determine that the price is fair and reasonable, the item will be prohibited from being ordered, until either the vendor revises the offered price to a fair and reasonable price or adequately justifies to the contracting officer’s satisfaction that the price is fair and reasonable. |

Type of EMALL Commercial Catalog Contract | Pre-award Price Reasonableness Determination | Post-Award Price Reasonableness Determination for new items added to catalog.
New items added to catalog after initial price reasonableness determination was made. | The price reasonableness determination and testing for new items added to existing catalogs will follow the same techniques as the review of the initial catalog. However, the universe of items selected for 100% review (using stratification of high dollar items) or statistical sampling will consist of only the new items added since the initial catalog price reasonableness determination was made. | The contracting officer will perform a post award review of those items which are being ordered by EMALL customers in large dollar amounts (i.e., more than $25,000 in a fiscal year), and that were not selected for review during the pre-award sampling process. This procedure should be supplemented by performing a statistical analysis similar to that performed in the pre-award phase for other items not examined during the pre-award sampling process.
Re-solicitation and award of contract when it expires or reaches maximum ordering limit. | The price reasonableness determination for renewal catalogs will use the same process as for new catalogs. However, the contracting officer should also consider using the results of previous pre-award and post award reviews in the risk assessment used in selecting items for 100% (or stratified review). Additionally the contracting officer should consider using applicable Producer Price Index (PPI) changes from the old price timeframe to develop estimated fair and reasonable prices for items in the renewal catalog and compare this to the contractor’s proposed prices. | The contracting officer will perform a post award review of those items which are being ordered by EMALL customers in large dollar amounts (i.e., more than $25,000 in a fiscal year), and that were not selected for review during the pre-award sampling process. This procedure should be supplemented by performing a statistical analysis similar to that performed in the pre-award phase for other items not examined during the pre-award sampling process.

PGI 15.402-92 Acquisitions for sole-source items subject to limited competition.

Contracting officers shall use the following guidelines in making the determination required by 15.402-92(a):

(a) Assessing “Extent of Competition.” In acquisitions for sole-source items that are subject to limited competition, a major factor that must be considered is whether the OEM exerts control over the competitors in the procurement, especially with regard to pricing, or whether the nature of the business relationship otherwise results in the OEM’s competitors’ pricing being directly dependent on the OEM’s pricing without significant independent pricing decisions by the competitors. For example, if the OEM exerts control over dealers or distributors by controlling the resale prices that dealers or distributors may charge, adequate price competition does not exist. If, however, the dealers and distributors have access to adequate supplies of the OEM’s product and may set their own prices (even if those prices, by virtue of economic exigencies, vary very little from one dealer or distributor to another), then adequate price competition may be found to exist for TINA purposes and for buys where TINA would not apply.

(1) OEM strategies. There are a variety of different alternatives employed by OEMs for selling/distributing products, including:

(i) selling directly to all customers;

(ii) selling through their own financially-affiliated network of dealers/distributors;

(iii) selling to multiple independent (not financially affiliated) dealers/distributors; and/or

(iv) entering into a sole dealer/distributor relationships (often found to lack transparency not conducive to independence and is often characterized by both parties refusing to make available the OEM’s cost data to substantiate atypical rapid growth in prices to the Government over time).

(2) OEM Control. The assessment should examine whether there is a financial (organizational) relationship under common ownership or control, or other business relationship not conducive to dealer/distributor independence and objectivity because the OEM exerts control over dealers or distributors. OEMs in situations involving competition with independent dealers/distributors may disclose cost details of their price.

(i) If the OEM does not provide a detailed breakdown of direct material, direct labor, overhead, along with General and Administrative costs (G&A) to dealers/distributors, this could be an indication of OEM control over the dealer(s)/distributor(s). In this type of situation the contracting officer may not have enough information to determine price reasonableness of the item being purchased.

(ii) Dealers/distributors should generally:

(A) conduct appropriate cost or price analysis on the OEM (that may be acting as a subcontractor to the dealer/distributor) to establish the reasonableness of the proposed price (DFARS PGI 15.404-3); and

(B) include the results of this analysis in its price proposal.

(iii) In instances when the OEM is unwilling to furnish data required for this analysis to the dealer/distributor, higher tier subcontractor/contractor, or directly to the Government; or if the dealer/distributor is unable or unwilling to perform the analysis, this could be considered an indication of control by the OEM and a sign that adequate price competition does not exist.

(iv) The unwillingness to provide, or unavailability of, a written contract/agreement documenting an OEM’s business relationship with a dealer/distributor may also provide further evidence indicating the absence of an arm’s-length business relationship, which in turn may be indicative of a lack of a competitive market for sole-source parts offered by the dealer(s)/distributor(s).

(b) Determining Price Reasonableness. In situations where sole-source items are subject to limited competition, consider the low offerer’s price in comparison to historical prices paid, along with the need for information on the offeror’s systems, which may be useful indicators of price realism and/or reasonableness.

(1) Historical price comparison. An explanation of the basis and frequency of the OEM’s price increases to dealers/distributors should be requested and considered when the contracting officer is basing a price reasonableness determination on a price comparison to previous prices. A pattern of frequent/substantial price increases since the inception of a dealer/distributor relationship may indicate the absence of an arm’s-length business relationship. For example, if a dealer/distributor increases prices by 20 percent annually, but the applicable producer price index (PPI) or cost indexes for material and labor increased at a significantly lower rate, this should be investigated. Where available, price increase information for both the dealer/distributor and OEM (that may be acting as a subcontractor) should be evaluated to determine the reasonableness of proposed price increases. If the OEM is proposing price increases significantly higher than the applicable independent measure(s) of cost/price growth by the dealer/distributor, and if the OEM refuses to provide appropriate documentation to support its proposed costs to the dealer/distributor, this could be viewed as an indication of OEM control over the dealer(s)/distributor(s) and indicate that adequate price competition may not exist.

(2) Contractor Purchasing System. For acquisitions involving sole-source items subject to limited competition that exceed the TINA threshold, the contracting officer should consider:

(i) Obtaining current contractor purchasing system review (CPSR) status information from the cost and price office/analyst (see 15.404-1(a)(90)(5)), or direct from the cognizant Defense Contract Management Agency administrative contracting officer (ACO) of the most recent completed, pending, or planned review; and

(ii) If the contractor does not have an approved purchasing system, or if the system has not been reviewed, consider requesting that the ACO evaluate whether the OEM’s projected sales to Government during the next 12 months meet the FAR 44.302 criteria, to determine if a CPSR should be performed.

(iii) If a CPSR should be performed, the contracting officer should request that the ACO perform this review so that the information is available to the contracting officer.

(iv) Documentation related to the CPSR status, any request for a CPSR review or eligibility assessment, and the CPSR report shall be included in the contract file supporting the award, and a copy furnished the cognizant local pricing office that is responsible for providing support for the acquisition.

(3) Contractor estimating system review (CESR). For acquisitions of sole-source items subject to limited competition that exceed the TINA threshold and will result in an award to a large business, the contracting officer should consider obtaining current CESR status information of the proposed large business awardee from the cost and price office/analyst or direct from the cognizant Defense Contract Management Agency ACO (DFARS 215.407-5). This information shall be documented in the contract award file supporting the award.

PGI 15.404-1(c)(91) One pass pricing.

(i) The OPP process may be used by the contracting officer to price sole-source items in establishing a long-term contract (LTC), addition/modification to an existing LTC, or a stand alone fixed quantity contract. The process is supported by a Memorandum of Agreement (MOA) which establishes the procedures for OPP agreed to by the contractor and the government.

(ii) The following criteria apply when using the OPP process:

(A) The contractor should:

(1) Be an active registrant in the Central Contractor Registration (CCR)

(2) Maintain acceptable purchasing, estimating, and accounting systems, approved by DCMA. Any system deficiencies noted by DCAA or DCMA which might have a material impact on price should be addressed and/or resolved prior to conducting OPP pricing sessions. If the contractor does not have approved system(s), the contractor will submit information to support that their systems will provide sufficient information to support the simultaneous proposal preparation, proposal analysis and agreement on price.

(3) For contractors with CAS covered contracts, provide the impact of any CAS non-compliances on the pricing action.

(4) Provide current, accurate, and complete cost and pricing information at each pricing session (e.g., material costs, labor hours, etc.) and supporting documentation at the item level.

(5) Have a Forward Pricing Rate Agreement (FPRA), or other agreement, for all direct and indirect rates.

(6) Sign an OPP Memorandum of Agreement (MOA) prepared in accordance with paragraph (iii) below.

(B) The contracting officer shall:

(1) Comply with DLAD Part 1 review and approval thresholds and as supplemented by local policy.

(2) Discuss OPP in the Acquisition Plan or Advance Acquisition Planning Template (AAPT) for new contract actions when anticipating using the process for the acquisition.

(3) Ensure the contract file contains documentation that supports the decisions and rationale used in the development and approval of the MOA. This includes a Pre-Negotiation Business Memorandum/Price Negotiation Memorandum (PBM/PNM) that supports the rates and profit rate cited in the MOA .

(4) Establish an OPP team with the appropriate personnel to provide the broad “skill set” necessary to evaluate information at the OPP pricing session to support “real–time” decisions. At a minimum the team shall consist of the contracting officer and the cost/price analyst. Other team members may include a product specialist and/or DCMA representative.

(5) Determine if there are any system deficiencies and/or CAS non-compliances noted by DCAA or DCMA which may have a material impact on the pricing action. OPP pricing sessions should not be conducted until such conditions are resolved. All system deficiencies and/or CAS non-compliances will be addressed in the PBM/PNM, including materiality and resolution.

(6) Contact DCMA to obtain the most recent FPRA and/or to request assistance and coordination in evaluating the contractor’s proposed rates in order to establish an agreement on rates.

(7) Request a DCAA audit or other field pricing assistance as applicable to the OPP action.

(8) Document the application of the OPP process in a PBM/PNM. The PBM/PNM shall comply with requirements of FAR 15.406, DLAD Part 1 and local guidance.

(9) Ensure the following information (at a minimum) are documented for each NSN in the PBM/PNM

(i) Annual demand quantity (ADQ);

(ii) Minimum order quantity;

(iii) Selected comparison award (award number, PRC, quantity, award date, and unit price);

(iv) Adjusted comparison price which is the selected comparison award unit price adjusted for current circumstances (e.g., quantity, time and basis for adjustment);

(v) Annual demand value (ADQ times adjusted comparison price);

(vi) Exchange of information between the government and the contractor relevant to the developed price;

(vii) Variance between the proposed price and the adjusted comparison price;

(viii) Price analyst’s recommendation on price reasonableness;

(ix) Contracting officer’s decision on price reasonableness; and

(x) Detail explanation if the price analyst’s recommendation and the contracting officer’s decision on price reasonableness differ.

(10) Provide a spreadsheet to the field pricing office analyst listing each NSN, the required or annual quantity, and the minimum order quantity, if applicable, at least 30 days prior to the OPP pricing session to allow sufficient time for the pricing office to select comparison prices from the procurement history and calculate adjusted comparison prices for each NSN. Additional time may be required depending on the number of NSNs to be addressed during the pricing session.

(11) Ensure prior to an OPP pricing session an agreement on rates and profit has been reached between the contractor and the contracting officer. The contracting officer shall review the criteria used for the profit rate in the MOA and ensure it is applicable to each OPP pricing session.

(12) After approval by the Chief of the Contracting Office, sign an OPP Memorandum of Agreement (MOA) prepared in accordance with paragraph (iii) below.

(C) The Chief of the Contracting Office (CCO) shall

(1) Establish review procedures for OPP MOA that includes legal counsel and any stakeholders, e.g. DCMA, DODIG, etc.

(2) Ensure a price analysis report is prepared by the pricing office and provided to the contracting officer for each NSN to be addressed during the OPP pricing session.

(3) Include OPP actions in all local procurement management reviews (PMRs).

(4) Ensure approval of OPP team membership at least two levels above the contracting officer prior to the OPP sessions.

(D) The Component Acquisition Executive (CAE) shall ensure OPP actions are included in DLA HQ Procurement Management Reviews.

(E) The center of excellence for pricing will conduct reviews of OPP pricing sessions and documentation to ensure compliance with the OPP policy and procedures.

(iii) The OPP Memorandum of Agreement (MOA) is an agreement signed by the contractor and the government which defines the application of the OPP process for sole-source items. A template is provided for reference. The elements of the MOA should include, but is not limited to the following:

(A) Definitions of terms used in the MOA and during the application of the OPP procurement process.

(B) The conditions under which the agreement can be terminated.

(C) Reference the agreed upon rates and factors and how they are applied to the cost data or cost information used to develop prices.

(D) Recommended profit rate and criteria for application of this rate.

(F) The procedures for engaging in the OPP process.

(G) How the items are identified and prioritized for the OPP process (e.g., strategic material sourcing (SMS) items, items with unfulfilled orders (UFOs), high-frequency items).

(H) How items will be handled if a fair and reasonable price cannot be agreed upon by both parties (e.g., table for a future pricing session, remove from consideration for an LTC).

(I) Any FAR, DFARS, DLAD, or local regulations applicable to the process (e.g. DFARS 215.404-1?).

(J) Special conditions that may be unique to the items or the particular contractor.

(K) Identify by name or by position the individuals authorized and required to sign the MOA and the effective date of the agreement.

(iv) The steps in the OPP process are:

(A) Engage the contractor to explain the OPP process.

(B) Create a draft MOA.

(C) Conduct a “mock” or practice pricing session by selecting a small group of items and walking through the OPP process as defined in the MOA.

(D) Finalize the MOA.

(E) Request and receive an independent audit opinion, as applicable.

(F) Conduct “live” pricing sessions.

(G) Discuss the underlying pricing data/information during the live session that results in adequate documentation to support a recommendation to award without negotiations at fair and reasonable prices.

(H) If required, obtain a certificate of current cost or pricing data.

(I) Document the results of the OPP pricing sessions in the combined Pre-Briefing Memorandum/Price Negotiation Memorandum (PBM/PNM) and reviewed in accordance with DLAD and local guidance.

(J) Continue periodic live pricing sessions until:

(1) All viable items for the OPP process have been considered, or

(2) One or both parties decide to discontinue the OPP process.

PGI 15.406-1 Prenegotiation objectives.

(a) Procedures for resolving audit disagreements.

(1) Applicability: Contract proposals valued at $10 million or more.

(2) Definition: Significant disagreement – The situation that occurs when the contracting officer’s prenegotiation objective plans to sustain less than 75 percent of the total recommended questioned costs in the DCAA audit report. This does not include costs classified as “unsupported” in the audit report.

(3) Contracting officers are charged with making informed decisions utilizing the advice of specialists in audit, law, engineering, etc., to ensure we fulfill the requirements of our warfighters while obtaining the best business deal for the taxpayers. While the contracting officer and the auditor may not necessarily agree on every issue, it is expected that they will work together recognizing that it is the contracting officer’s ultimate responsibility to determine fair and reasonable contract value. This PGI establishes the DLA procedures for attempting to resolve significant disagreements in accordance with DoD policy.

(4) Resolution of contract audit disagreements.

(i) Prior to establishing the prenegotiation objectives, the contracting officer shall discuss the results of the audit report with the auditor to attempt to resolve disagreements.

(ii) The contracting officer shall document the results of the discussion with the auditor and the reasons for disagreement with specific elements of costs questioned by DCAA.

(iii) Approval of the prenegotiation objectives memorandum in accordance with local procedures confirms that the discussion with DCAA and the contracting officer’s basis for deviating from the audit recommendations has been adequately documented and supported.

(iv) If the approved prenegotiation objectives memorandum does not plan to sustain at least 75 percent of the total audit recommended questioned costs, the contracting officer shall notify the auditor in writing (email notification is acceptable). The notification will require DCAA to advise within 3 days if a higher level management review is requested. If DCAA confirms (in writing) to the contracting officer that a higher level review is requested, the contracting officer will provide the contact information of the higher level review authority (the HCA) and begin planning for discussions. Concurrent with providing the higher level review information to the auditor, the contracting officer shall notify their HCA through their chain of command that a higher level review has been requested by DCAA (activities for which J7 is the HCA shall notify the J73 Division Chief who notify the Director, DLA Acquisition (J7)). After all parties have been notified of the request for a higher level review, it is within the discretion of the contracting officer and his/her chain of command to decide whether negotiations should proceed or be suspended pending final resolution of the disagreement.

(v) Concurrent with notification to their HCA, DLA Energy, DLA Troop Support, DLA Land and Maritime, and DLA Aviation contracting officers shall also notify the J73 Division Chief of the request for higher level review. J73 will track the frequency and disposition of audit resolution issues.

(vi) At the HCA level, a review will attempt to determine if the auditor’s and the contracting officer’s positions can be reconciled. The contracting officer shall document the disposition of the higher level review of the disagreement(s) in a memorandum for the contract file.

(vii) If the HCA is other than J7 and is unable to resolve the differences with DCAA, the approving authority shall notify J73 with copies of the contracting officer’s documentation of the issue. In turn, J73 shall inform the Director of Acquisition Management, J7, of the unresolved audit and the possibility of discussions with the DCAA Director prior to any DCAA referral to the Director, Defense Procurement and Acquisition Policy.

PGI 15.406-3 Documenting the negotiation.

(a)(11) The price reasonableness code (PRC), a two position code incorporated into DLA’s enterprise business system (EBS), consists of a first position reviewer code and a second position type analysis code, as follows:

First Position: | Reviewer Code: |
B | Buyer Analysis only.
C | Complete Pricing Support to buyer (field cost/price analysis, audit and/or technical reports included as part of the pricing office’s report).
F | Field Pricing Support to buyer. (One or more to include field cost/price analysis, audit and/or technical review.)
P | Local Contract Pricing Office Support to buyer. (Does not include field audit, pricing or technical assistance reports.)
V | Local Value Engineering Office support to buyer.
X | Price reasonableness determination accomplished using pricing logic of the automated purchase procedure.
Second Position: | Type Analysis Code:
Instant buy price(s) determined reasonable because of:
A | Adequate price competition from at least two independent manufacturers of the item.
B | Adequate price competition from at least one manufacturer plus at least one independent non-manufacturing source for the item or involving two or more independent non-manufacturing sources.
C | Catalog priced item sold in substantial quantities to the general public.
D | Market priced item sold in substantial quantities to the general public.
E | Item price set by law or regulation.
F | Cost analysis of offeror’s/contractor’s cost or pricing data, e.g. for UCA definitizations. (For exclusive distributors/dealers and other non-manufacturers, such cost analysis must include review of manufacturing costs from their source of supply.)
G | Price comparison to prior price(s) determined reasonable via valid price analysis.
H | Independent Government cost estimate.
I | Other cost analysis or price analysis technique(s) (includes reviews of limited cost data).
Y | Contracting officer’s determination that prices are fair and reasonable in accordance with FAR 13.106.3 or when 13.202(a)(3) applies. Used only for manual awards below the simplified acquisition threshold. Not to be used for awards using PACE or other automated procedures. For future acquisitions, actions coded with “Y” shall not be used for comparison in determining price reasonableness.
Instant buy price(s) determined reasonable based on comparison to:
J | Adequate price competition occurring in a recent procurement in comparable quantities, terms and conditions for the same item where quotes/offers were received from at least two independent manufacturers of the item.
K | Adequate price competition occurring in a recent procurement in comparable quantities, terms and conditions for the same item where quotes/offers were received from one manufacturer plus at least one independent non-manufacturing source of the item or from two or more independent nonmanufacturing sources.
L | Adequate price competition occurring in a recent procurement in comparable quantities, terms and conditions for substantially the same item where quotes/offers were received from at least two independent manufacturers.
M | Adequate price competition occurring in a recent procurement in comparable quantities, terms and conditions for substantially the same item where quotes/offers were received from either one manufacturer plus at least one independent non-manufacturing source of the item or from two or more independent non-manufacturing sources.
N | Catalog price for the same item sold in substantial quantities to the general public.
O | Catalog price for substantially the same item sold in substantial quantities to the general public.
P | Market price for the same item sold in substantial quantities to the general public.
Q | Market price for substantially the same item sold in substantial quantities to the general public.
R | Item price set by law or regulation.
S* | Analysis of cost and pricing data submitted by the offeror for a recent buy of the same item (including ACO approved Government parts catalogs and formula arrangements covering parts for which a TINA waiver was not granted).
T* | Analysis of cost or pricing data submitted by the offeror of a recent buy of substantially the same item (including ACO approved Government parts catalogs and formula pricing arrangements covering parts for which a TINA waiver was not granted).
Instant buy price(s) reasonableness not required because:
W | Award is an unpriced purchase order or undefinitized contract action. (Use with Reviewer Code B only. Price reasonableness determination shall be made at time of contract/order definitization.
X | Price not reviewed for price reasonableness by pricing logic of automated purchase procedures. Code is only applied by the automated system if a price reasonableness threshold is used/set in the initial logic. System will use with Reviewer Code X only. Not to be used for manual awards.

* Restricted to noncompetitive negotiated contract actions not exceeding the Truth in Negotiations Act (TINA) threshold (FAR 15.403-1(b)(4)) unless cost or pricing data and certification are obtained for the new buy or the offeror identifies its previous cost or pricing data submission and certifies it is still current, accurate and complete for purposes of pricing the current contractual action.

PGI 15.408-90(c) Quarterly reporting requirement.

There is a quarterly reporting requirement when clause/provision 52.215-9023 and Reverse Auctions (RA) are used by a DLA contracting activity. The following spreadsheet template is a sample of how to track RA savings, where initial price is the most recent price paid (i.e., price history) before the reverse auction. Before computing the percentage difference between the current price and the prior price, adjust for quantity, escalation, and other factors necessary to achieve comparability. For a link to the current Reverse Auction tools’ online demonstration go to the web-site at https://help.procuri.com/robo/projects/buyer_help_50_en/Demos/Demo_Center.htm

REVERSE AUCTIONS (RAs) Status Report |  |  |
Q1, 2010 |  |  |  |  |  |  |
Supply Chain / PLFA | Item | QTY | Initial Unit Price | Final RA Price | RA price Savings | Proposed Savings | Comments
Medical | M40 Mask mount | 1000 | $215.00 | $203.00 | $12.00 | $12,000.00 |
| M45 Insert | 1000 | $55.00 | $48.00 | $7.00 | $7,000.00 |
Grand total |  |  |  |  |  | $19,000.00 |

(i) For screen shots and DEMO’s of the Reverse Auction Provider’s tool, go to the web-site at https://help.procuri.com/robo/projects/buyer_help_50_en/Demos/Demo_Center.htm.

(ii) For guidance on criteria for selecting Reverse Auction candidates, refer to the following table.

(A) Reverse Auctioning is an Internet-based (electronic commerce) acquisition tool following traditional auction principles that allows the Government to procure goods and services from vendors/suppliers in a competitive and dynamic environment where the sellers successively bid prices down until the auction completes. A contract can be awarded to the winner provided it represents the best value and the rest of the offer is technically acceptable. (B) What are you buying? It should be noted that reverse auctions work well for competing for a delivery order for hardware or services on DoD, GSA Schedules and other multiple-award type indefinite delivery/ indefinite quantity (IDIQ) type contracts. Reverse auctions are best suited for high volume, commodity type commercial items or commodity-like services, which: do not need exact/lengthy specifications, are available off the shelf, and are based on competing by the price alone. The list of items being procured by DoD using reverse auctions is growing. Since the beginning, DoD has used reverse auctions to procure such diverse items as aircraft ejection seats, shipboard berthing, circuit boards, goods (potatoes, cabling, laminate cloth), medical supplies and pharmaceuticals, information technology items (e.g., computers and printers), and some services that are fairly well defined (e.g., mess attendant services, packing and crating). (C) Reverse auction appears to be the best procurement tool for the job: In bulk commodity type procurements where the requirements can be well-defined or are universally understood (e.g., IT type equipment). Well-defined requirements for many forms of complex service type procurements are difficult to develop. Where the solicitation documents can be standardized with respect to procedures for the auction (e.g., cut-off time, duration, extensions, communication interrupt procedures). Where there is a well-established supplier base for the goods. In situations where the award evaluation criteria is not subject to much interpretation (e.g., on low price versus more than one criteria that may involve trade-offs and subjective judgments). (D) Indirect costs of reverse auctioning When considering the use of reverse auctioning, officials need to be aware that there have been questions raised as to whether this method really results in as much savings as billed. The center for lean business management conducted a study involving reverse auction experiences of some of the most prestigious companies in the country. The study shows that the indirect costs (costs that are not accounted for in the purchase price of items) involved with the procedure may significantly reduce the large cost savings cited as success criteria. Some indirect costs cited are item data integrity, logistics, recurring costs, set-ups, and associated auction fees. Consider the administrative costs when deciding whether the use of an auction makes sense for your procurement. (E) Reverse auction determination model. Another way to approach the reverse auction determination model is to ask a series of questions: Is the procurement for a commodity or commodity-like service? Does the FAR allow those types of procurements? Does a reverse auction fit into my acquisition strategy? Can I do a good job of defining the requirement in a solicitation? Do the advantages outweigh the disadvantages? Has this type of item/service been done in a reverse auction before? What were the results/lessons learned? What is a fair auction starting price? Is there an established vendor base/price baseline? What type of market research needs to be done? How long will the process take? Do contracting vehicles exist for conducting a reverse auction that I can easily use? Do I know enough about how to structure the solicitation instructions (Sections L and M)? Can I make a reasonable estimate of what the auction will cost? Can I estimate what the level of cost savings might be?