25.106 Determining reasonableness of cost
Source: FAR 25.106 on acquisition.gov
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.
(a) The contracting officer-
(1) Must use the evaluation factors in paragraphs (b) and (c) of this section unless the head of the agency makes a written determination that the use of higher factors is more appropriate. If the determination applies to all agency acquisitions, the agency evaluation factors must be published in agency regulations; and
(2) Must not apply evaluation factors to offers of eligible products if the acquisition is subject to a trade agreement under subpart 25.4.
(b) For end products that are not critical items and do not contain critical components.
(1)
(i) If there is a domestic offer that is not the low offer, and the restrictions of the Buy American statute apply to the low offer, the contracting officer must determine the reasonableness of the cost of the domestic offer by adding to the price of the low offer, inclusive of duty—
(A) 20 percent, if the lowest domestic offer is from a large business concern; or
(B) 30 percent, if the lowest domestic offer is from a small business concern. The contracting officer must use this factor, or another factor established in agency regulations, in small business set-asides if the low offer is from a small business concern offering the product of a small business concern that is not a domestic end product (see subpart 19.5).
(ii) The price of the domestic offer is reasonable if it does not exceed the evaluated price of the low offer after addition of the appropriate evaluation factor in accordance with paragraph (a) or (b)(1)(i) of this section. See evaluation procedures at subpart 25.5.
(2)
(i) For end products that are not COTS items and do not consist wholly or predominantly of iron or steel or a combination of both, if the procedures in paragraph (b)(1)(i) of this section result in an unreasonable cost determination for the domestic offer or there is no domestic offer received, and the low offer is for a foreign end product that does not exceed 55 percent domestic content, the contracting officer shall—
(A) Treat the lowest offer of a foreign end product that is manufactured in the United States and exceeds 55 percent domestic content as a domestic offer; and
(B) Determine the reasonableness of the cost of this offer by applying the evaluation factors listed in paragraph (b)(1)(i) of this section to the low offer.
(ii) The price of the lowest offer of a foreign end product that exceeds 55 percent domestic content is reasonable if it does not exceed the evaluated price of the low offer after addition of the appropriate evaluation factor in accordance with paragraph (a) or (b)(1)(i) of this section. See evaluation procedures at subpart 25.5.
(iii) The procedures in this paragraph (b)(2) will no longer apply as of January 1, 2030.
(c) For end products that are critical items or contain critical components.
(1)
(i) If there is a domestic offer that is not the low offer, and the restrictions of the Buy American statute apply to the low offer, the contracting officer shall determine the reasonableness of the cost of the domestic offer by adding to the price of the low offer, inclusive of duty—
(A) 20 percent, plus the additional preference factor identified for the critical item or end product containing critical components listed at section 25.105, if the lowest domestic offer is from a large business concern; or
(B) 30 percent, plus the additional preference factor identified for the critical item or end product containing critical components listed at section 25.105, if the lowest domestic offer is from a small business concern. The contracting officer shall use this factor, or another factor established in agency regulations, in small business set-asides if the low offer is from a small business concern offering the product of a small business concern that is not a domestic end product (see subpart 19.5).
(ii) The price of the domestic offer is reasonable if it does not exceed the evaluated price of the low offer after addition of the appropriate evaluation factor in accordance with paragraph (a) or (b) of this section. See evaluation procedures at subpart 25.5.
(2)
(i) For end products that are not COTS items and do not consist wholly or predominantly of iron or steel or a combination of both, if the procedures in paragraph (c)(1)(ii) of this section result in an unreasonable cost determination for the domestic offer or there is no domestic offer received, and the low offer is for a foreign end product that does not exceed 55 percent domestic content, the contracting officer shall—
(A) Treat the lowest offer of a foreign end product that is manufactured in the United States and exceeds 55 percent domestic content as a domestic offer; and
(B) Determine the reasonableness of the cost of this offer by applying the evaluation factors listed in paragraph (c)(1) of this section to the low offer.
(ii) The price of the lowest offer of a foreign end product that exceeds 55 percent domestic content is reasonable if it does not exceed the evaluated price of the low offer after addition of the appropriate evaluation factor in accordance with paragraph (a) or (b) of this section. See evaluation procedures at subpart 25.5.
(iii) The procedures in this paragraph (c)(2) will no longer apply as of January 1, 2030.