31.102
Fixed-price contracts
When cost analysis is required for fixed-price contracts, apply cost principles to determine a fair and reasonable total price, but agreement on individual cost elements is not mandatory.
Overview
FAR 31.102 addresses the use of cost principles in the pricing of fixed-price contracts, subcontracts, and modifications when cost analysis is required or when a contract clause mandates cost determination or negotiation. It clarifies that while cost principles from Part 31 must be applied in these situations, this does not obligate parties to negotiate each individual cost element. Instead, negotiations should focus on reaching agreement on the total contract price, ensuring it is fair and reasonable considering all relevant factors. The section reinforces that the ultimate goal is a fair and reasonable price, not agreement on every cost detail.
Key Rules
- Application of Cost Principles
- Cost principles from Part 31 must be used when pricing fixed-price contracts if cost analysis is performed or required by contract clauses.
- Negotiation Focus
- Parties are not required to agree on each cost element; only the total price must be agreed upon.
- Fair and Reasonable Pricing
- The objective remains to negotiate a fair and reasonable total price, considering costs and other relevant factors.
Responsibilities
- Contracting Officers: Ensure cost principles are applied when required, focus negotiations on total price, and document fair and reasonable pricing.
- Contractors: Provide cost data when required, participate in total price negotiations, and understand that agreement on individual cost elements is not mandatory.
- Agencies: Oversee compliance with cost principle application and fair pricing objectives.
Practical Implications
- This section ensures transparency and consistency in pricing fixed-price contracts when cost analysis is involved.
- It prevents unnecessary disputes over individual cost elements, streamlining negotiations.
- Contractors should be prepared to justify total pricing but are not required to agree on every cost detail, reducing administrative burden.