Research Corporation of the University of Hawaiʻi

2.110 Cost or Price Reasonableness

A key element of procurement is justifying the cost or determining the price reasonableness of an action; refer to 2 C.F.R. § 200.404. Cost or price reasonableness, sometimes referred to as a cost or price analysis, is best exemplified via the Prudent Person Test. Given a reasonable knowledge of market conditions, would a prudent businessperson pay the asking price for a product, service, or construction?
RCUH policy and federal regulations (see 2 C.F.R. § 200.323) require documentation of cost analysis or price analysis for procurement actions. The Attachment 1 Determination of Cost or Price Reasonableness form is used to document the analysis to show that the offered price is fair and reasonable. The form is kept as part of the procurement file to demonstrate that the procurement process was conducted in an open and fair manner and that RCUH received the most advantageous price.

I. Responsibilities
A. Principal Investigator
Document that the cost or price is fair and reasonable. Complete the Determination of Cost or Price Reasonableness form and submit it to the Fiscal Administrator (FA) for approval. Respond to the FA’s inquiries.
B. Fiscal Administrator
Regardless of the purchase price, ensure that the Determination of Cost or Price Reasonableness form sufficiently details that the cost or price is fair and reasonable; ensure that the cost is allowable and allocable; and ensure that the basis for the determination of cost or price reasonableness is in the procurement file. Respond to any inquiries from RCUH Procurement.
II. Details of Policy
A. When Is a Determination of Cost or Price Reasonableness Required?
The Attachment 1 Determination of Cost or Price Reasonableness form is required for the following procurement actions that are greater than the micro-purchase threshold of $10,000:
1. Sole source, including any procurement action approved for sole source in UH AP 8.255 Sole Source Procurement, Exhibit A.
2. Emergency procurement where only one (1) quote is received; refer to Policy 2.108 Emergency Purchase.
3. Request for Quotations (RFQ) where the solicitor uses discretion to select the vendors invited to submit a quote, and where less than three (3) quotations are received. In this situation, the solicitation is not publicly posted.
4. RFQs or Invitations for Bid (IFB) where the solicitation is publicly posted in such a way that the solicitor does not control who responds (e.g., the utilization of SuperQUOTE or an equivalent State public posting system, or advertising in a publication of regular circulation), and where only one (1) quote/bid is received.
5. All RFQs and IFBs where the lowest quote/bid is NOT selected.
6. All Request for Proposals.
7. Price adjustment to an existing purchase order or contract that increases the dollar amount (this action usually involves a purchase order change form and/or contract amendment).
8. Any exempt procurement action in UH AP 8.220 General Principles, Section 9, unless excepted in Section II.B below.
9. Professional services procurement; refer to Policy 2.210 Professional Services Contracts.
10. Any extension of an existing contract past its initial term which increases or adds to the cost or price (i.e., an Attachment 1 Determination of Cost or Price Reasonableness form is not required for no-cost extensions); refer to Policy 2.205 Multi-Term Contracts.
B. When Is a Determination of Cost or Price Reasonableness Form NOT Required?
A Determination of Cost or Price Reasonableness form is not required in the following situations:
1. Procurement actions of $10,000 or less, where the price of the good or service is deemed reasonable (the approval of the FA indicates price reasonableness).
2. RFQs where discretion is used to select the vendors invited to submit a quote, and where three (3) quotations are received and an award is made to the lowest responsive and responsible bidder.
3. RFQs and IFBs where the solicitation is publicly posted in such a way that the solicitor does not control who responds (e.g., the utilization of SuperQUOTE or an equivalent State public posting system, or advertising in a publication of regular circulation), and where at least two (2) quotes/bids are received and an award is made to the lowest responsive and responsible bidder.
4. Issuance of a University of Hawai‘i subaward agreement on a Federal Grant or a Federal Cooperative Agreement. The University of Hawai‘i has determined that a UH subaward is not a procurement action.
5. Payment for utility services that are regulated by a public utilities commission (i.e., electricity, water, gas), and postage via the United States Postal Service.
C. Price Analysis
Price analysis is the process of determining whether the price is reasonable and acceptable. The analysis should include an evaluation of price for the same or similar products or services, details of the research conducted, details of negotiations with the vendor or contractor, or details of other efforts made by the program to validate price reasonableness.
Price comparisons, not limited to the following, may be used in the price analysis.
1. Comparison with bids or offers in the current procurement action.
2. Comparison with prior price quotations or contract prices for the same or similar items or services.
3. Comparison with a published catalog price or published price list (a vendor’s quotation or correspondence does not qualify as a published price list).
4. Comparison with prices available on the open market.
5. Comparison of an invoiced price to own institution or to another institution.
6. Comparison with prevailing rates in the industry or profession.
7. The price analysis is documented on the Attachment 1 Determination of Cost or Price Reasonableness form. See Attachment 57 Sample Price and Cost Analyses for assistance with price analyses.
D. Cost Analysis
A cost analysis may be completed by performing an in-house estimate, which is the cost of the work if performed by your own staff, or an independent cost estimate, which is a cost review conducted by a third party expert. When conducting a cost analysis, consider the following:
1. Specific elements of cost.
2. The necessity for certain costs.
3. The reasonableness of amounts estimated for necessary costs.
4. The reasonableness of allowances for contingencies.
5. The basis used for the allocation of indirect costs.
6. The appropriateness of allocations of particular indirect costs to the proposed contract.
7. The reasonableness of the total cost.
Generally, cost analysis, rather than price analysis, is used to evaluate offered prices for complex procurement actions, or when comparative data to perform a price analysis does not exist. A cost analysis is performed for each proposal so that comparisons can be made between offers. These comparisons are documented on the Attachment 1 Determination of Cost or Price Reasonableness form.
In addition to the Project’s cost analysis, Federal Acquisition Regulations require that cost or pricing data be submitted by the contractor or vendor under specific circumstances involving federal contracts in excess of $750,000; refer to Policy 2.303 Certification Statements Required for Federal Purchases.

Relevant Documents
Attachment 1 Determination of Cost or Price Reasonableness
Attachment 57 Sample Price and Cost Analyses
Policy 2.106 Sole Source Purchase
Policy 2.107 Exempt Purchase
Policy 2.108 Emergency Purchase
Policy 2.205 Multi-Term Contracts
Policy 2.210 Professional Services Contracts
Policy 2.303 Certification Statements Required for Federal Purchases
UH AP 8.220 Procurement General Principles, Section 9
UH AP 8.255 Sole Source Procurement
UH AP 8.285 Cost or Price Reasonableness

Date Revised: 10/23/2020