Price analysis-Economics

Price Analysis is the process of deciding if the asking price for aproduct or service is fair and reasonable, without examining thespecific cost and profit calculations the vendor used in arriving atthe price.

It is basically a process of comparing the price with knownindicators of reasonableness.

Examples of other forms of price analysis information include:• Analysis of previous prices paid• comparison of vendor’s price with the in-houseestimate• comparison of quotations or published price lists frommultiple vendors• comparisons with GSA prices

Here are some basic techniques.

Price analysis. Use as many of the following techniques asapplicable and appropriate:

Compare competitive prices received in response to thesolicitation to one another. This assumes you receive a largeenough number of competitively priced offers from thecurrent marketplace.

Compare proposed prices with prices under existing contractsand with prices proposed in the past for the same or similaritems/services. Be sure to factor in any market changes (e.g.,commodity price changes) or other influences (e.g.,inflation).

Apply rough yardsticks (e.g., dollars per pound, per square foot,per hour, etc.) to compare prices and highlight significantinconsistencies that warrant additional pricing inquiry.

Compare competitive price lists, published catalog or marketprices of commodities and products, similar indices and discountor rebate arrangements.

Compare proposed prices with your independent (i.e., in-house)cost estimates.

How do price analysis apply to the differentcontracting methods?

Small purchase Competitive proposals non-competitive proposals

For routine, commercial type purchases, comparing price orrate quotes obtained from an adequate number of qualifiedvendors is sufficient price analysis.

If the small purchase is for professional or technical services, orthe HA needs to evaluate other factors than price, then at least alimited cost analysis is appropriate.

In either case, the HA's analysis should include comparing theproposed prices to past prices it has paid for the same or similaritems or services.

This method is most often used to contract forprofessional, consulting, and architect/engineering.

To determine the reasonableness of proposed costs, youmust obtain cost breakdowns from the offerors showingall the elements of their proposed total costs and performa cost analysis of each proposal using the appropriate setof cost principles.

These are sometimes called sole source contracts and aredifferent from single bids. No competition is intended, andusually, there is no market to help set the price or estimatedcost.

Since there is no price competition to tell you if the price orestimated cost is reasonable, you must obtain a breakdownof the proposed costs and perform a cost analysis.