Federal Acquisition Regulation and Types of Price Analysis - Essay Example

To compare different techniques to analyze prices, Federal Acquisition Regulation (FAR) promulgates which is a helpful guideline that assists both parties in transactions regarding the correct price of any article (Subpart 15.4-Contract Pricing).
Types of Price Analysis
There are different sorts of techniques that are highlighted in FAR, to correctly estimate the price of goods and services (Price Analysis Techniques: Procurement 2011). Some of them are listed below with a brief description.

1. Competitive Bids
In this technique, normally the price is asked from different suppliers so that an idea can be developed as to what is the range of the prices.
2. Past Quotations
This price analysis technique involves the use of previous quotations in respect of the same item. However, this technique has drawbacks in the form of not incorporating the element of inflation that normally increases with time.

3. List Price Technique
This method of determining the price utilizes the published list of prices in respect of goods and services, of similar types. Normally goods relating to general use are included in this category as the appropriate authority lists the prices of those goods for the general public.

4. Price Enforcement by Law
This technique refers to the determination of price through different laws. Normally government authorities fix some prices via law so that local producers can take benefit as well as the customers to avoid the danger of shortage.
5. Prices of Similar Items
In this technique, prices are determined by analyzing the prices of similar items. Normally the prices of raw materials are analyzed to get an estimate of the finished product.

6. Rough Estimates of Prices
This technique is not a technique but rather a way out to determine the prices when no such technique is available to determine the appropriate price. In this method, prices are sought by the personal judgment of the buyer based upon his past experiences and perception related to that particular product.

The rationale for Competitive Bid Pricing Technique
Among these broad techniques, the most commonly used technique is the comparison of the Bid Price Technique. In this technique, suppliers are asked to quote their prices and in the end, when the best price is found, the tender is given to that particular supplier (Dahl and Hammond 1977). This technique is also useful as the true price prevailing in the market is sought and the element of monopoly is mitigated through the use of this technique. This technique erodes the importance of all other techniques as in this method, the actual cost of the product is reflected, unlike other techniques in which pre-established prices are used which do not truly reflect the cost involved in that particular product. Other techniques are used to provide benefits to different parties to transactions instead of reflecting the cost of that product. Read More