Price Analysis Assume You Will Only Be

Price Analysis

Assume you will only be allowed to use one (1) method for performing price analysis for the duration of your career when evaluating contracts

When conducting a price analysis, the most obvious method of doing so is comparing competitive bids. "Obviously, this is one of the best means for validating price. By asking three or more suppliers of their prices for the same product, we can determine if a particular price is reasonable" (Price analysis techniques, 2012, Woods Hole Oceanographic Institution). However, it should be noted that the lowest price does not always mean the lowest cost, and the total cost of the contract must be analyzed. "There may be cost associated with making the lower cost product perform to standards, the additional cost of early replacement or the cost of redesign and/or testing required to make the lower cost product applicable. This 'total cost of acquisition' is the real cost that must be compared" (Price analysis techniques, 2012, Woods Hole Oceanographic Institution). When comparing competitive bids, it is important to use the same method of evaluating all the bids, to ensure that the comparison is conducted in a fair manner accurately reflecting the cost of each bid.

However, one disadvantage to this comparative method is that it is not always possible to obtain a wide variety of similar proposals to compare from credible companies. Another method of price analysis is that of a comparison of prior quotations "for the same product or service to determine the viability of the current quotation" (Price analysis techniques, 2012, Woods Hole Oceanographic Institution). This can also expedite matters if there is not enough time to compare multiple bids and a single bid alone is under consideration. A comparison of a published price list for the items, if available, is also another possibility to use when evaluating a quote. "This method should only be used for materials that are sufficiently similar to items or services are available to the general public and whose price would appear in a published price list" (Price analysis techniques, 2012, Woods Hole Oceanographic Institution). It is also possible to compare single items being purchased line-by-line with other similar items, to determine if the price is fair. Yet another method is the "rough yardstick...this technique uses a rough comparison between like items based on measurable similarities such as price per pound, cost per horsepower or price per test sample" (Price analysis techniques, 2012, Woods Hole Oceanographic Institution).

In some instances, price analysis is a moot point, given that the prices are already set by government regulations, and there is little leeway for the government or the contractor in determining the final price of the contract (Price analysis techniques, 2012, Woods Hole Oceanographic Institution). However, when this is not the case, of all of the available methods, comparing the currently-offered bids is the best of all of the options. While none of the comparative methods are perfect, finding similar comparable items or past proposals can be extremely difficult, given the rapid change of technology and the fact that the methods and costs of construction may have changed since the past prices were set. Comparing current offers gives a picture of how price is being determined in the 'here and now.'