25.106
Determining reasonableness of cost
FAR 25.106 requires contracting officers to apply specific evaluation factors to foreign offers to determine if domestic offers are reasonably priced, ensuring compliance with Buy American preferences unless a trade agreement applies.
Overview
FAR 25.106 outlines how contracting officers must determine the reasonableness of cost for domestic and foreign offers under the Buy American statute. It specifies the evaluation factors to be applied when comparing domestic and foreign end products, with different rules for critical items, items containing critical components, and other products. The section also addresses how to handle offers with varying domestic content and sets out special procedures for small business set-asides and for products manufactured in the United States with significant domestic content. Certain procedures are set to expire after January 1, 2030.
Key Rules
- Evaluation Factors
- Contracting officers must use specified evaluation factors (20% for large businesses, 30% for small businesses) unless higher factors are justified and published by the agency. These factors are not applied if a trade agreement under subpart 25.4 applies.
- Non-Critical Items/Components
- For non-critical items, add the appropriate evaluation factor to the low foreign offer to determine if the domestic offer is reasonable. If no reasonable domestic offer exists, treat certain high domestic content foreign offers as domestic for evaluation.
- Critical Items/Components
- For critical items or those with critical components, add both the standard and additional preference factors to the low foreign offer. Similar procedures apply for high domestic content foreign offers.
- Expiration of Certain Procedures
- Special procedures for high domestic content foreign offers expire on January 1, 2030.
Responsibilities
- Contracting Officers: Must apply the correct evaluation factors, document determinations, and follow procedures for both critical and non-critical items. Must not apply factors if a trade agreement applies.
- Contractors: Should understand how their offers will be evaluated, especially regarding domestic content and business size.
- Agencies: Must publish higher evaluation factors in regulations if used agency-wide.
Practical Implications
- Ensures domestic products are given a price evaluation preference in line with the Buy American statute.
- Contractors must be aware of how domestic content and business size affect their competitiveness.
- Misapplication of evaluation factors or failure to recognize trade agreement applicability can lead to protest or contract award errors.