To review the full policy please see UC Policy: BFB BUS-43 Material Management at UCOP.
B. COMMON GOODS, MATERIALS, AND SERVICES $100,000 OR LESS ANNUALLY IN VALUE:
- Governing Requirements: Negotiation is allowed for agreements or transactions where the expenditures with the specific supplier do not exceed $100,000 annually. Competition is sought if the Materiel Manager determines that the competition is necessary to develop a source, validate prices, or for other compelling business reasons. Negotiation may be used in conjunction with competitive quotations as well as in situations when competition is not obtainable or required.
- Conduct of Negotiations: For a purchase not exceeding $100,000, when it is advantageous to the University, all the necessary components of the order may be negotiated orally or in writing with one or more vendors. The number of vendors with whom negotiations are carried on is the responsibility of the Materiel Manager and will generally depend upon the size and complexity of the purchase and market conditions. Before making a commitment, there shall be a determination that the price is reasonable.
- Purchase Contracts: Purchase contracts shall be in writing at a level determined appropriate by the Materiel Manager to protect the interests of the University, when required under the provisions of Federal contracts and grants or other extramural sponsor agreements, for personal services, for hourly rate labor, when an allowable variation in quantity could increase the order value to a dollar level requiring a written order, when special risk exists, or when special documentation is required as in the case of foreign purchases. Purchases without written order generally should be made only when material is to be shipped promptly by a supplier familiar with this University practice.
REASONABLE PRICE DEFINITION
Reasonable Price: A price that does not exceed that which would be incurred by a prudent person in the conduct of a competitive business. Reasonable price can be established by market test, price or cost analysis, or the experience and judgment of the Materiel Manager. Such judgment considers total value to the University. There is value to the University in purchases which meet the University's needs, such as those involving quality, quantity, delivery and service. A reasonable price need not be the lowest price available, but is one which offers the highest total value to the University.
For transactions above $100,000, reasonable price is established through formal competition sufficient to ensure an adequate market test, or set by applicable law or regulation, or supported by an appropriate price or cost analysis.
What follows is a listing of the most common methods or criteria a Buyer uses to determine a fair and reasonable price.
Competitive Quotes/Price Competition: When two or more acceptable offers are received and the lowest price is selected, the price of the lowest offerer can be concluded to be fair and reasonable. It is noted that generally where the difference in prices between the two offers differs by less than 15%, the price competition is said to exist. A price that is very low must be checked to assure that the seller understands what is being asked for and has made no errors. Example: Seller A proposes a price of $2,592.00; Seller B, a price of $2,550.00 and Seller C, a price of $1,400.00. Seller C is low but the difference is too great. This must be checked to see if Seller C is proposing the same item(s) and has made no errors in the proposed pricing. If selection is made to other than the low, acceptable offer, the price must be determined to fair and reasonable by other means.
Published/Catalog Price/Compare Price sold to Federal Government: Comparable to price sold to federal government. The Federal Government often enters into contracts with various companies to establish the prices of items that will be sold to the Government. These are presumed to be fair and reasonable. If a Seller cites a GSA contract price, it must also provide the GSA contract number. This then is adequate rationale to determine the price fair and reasonable. The actual price may be lower than the GSA due to discounts, (if this is the case, it should be noted in the written analysis), or higher based upon volume sales discounts (supplier should provide their price break structure for volume sales).
Catalog or Established Price list: Where only one offer is received and the seller has a published or established price list or catalog, available to the general public, which sets forth the price of a commercial item, this fact can be used to find the price fair and reasonable. The catalog should be current (within one year, generally). Provide a dated page from the catalog along with the page where pricing is identified (this could be a printout of a web page). It is a good idea to obtain a name of another recent purchaser and confirm that this was the price paid. Often, discounts off of the price list are offered. If this is the case, it should be noted in the written analysis. The item to be purchased should generally be a commercially produced one sold to the general public in substantial quantities.
Market Prices: Where an item has an established market price, verification of an equal or lower price also establishes the price to be fair and reasonable. Example, the purchase of metals, such as lead, gold, silver, or commodities such as grains.
Price History of Identical goods and services: If the buyer has a history of the purchase of the item over several years, use of this information, taking into account inflation factors, can be used to determine a price fair and reasonable. The historical pricing summary must be supported by appropriate documentation (computer reports or copies of PO’s).
System Wide Agreement: Price based on prior competition. It may be that only one Seller will make an offer. If this is the case, and the item was previously purchased based on competition, this may be acceptable. In such cases, cite the price of prior purchase and note if it was competitive or based on catalog price or other. An increase in price, with no current catalog or competition, should be about the rate of inflation between the time of the last competition and the commitment of the current order.
Independent University (In-House) Estimate: If an independent estimate of the item has been prepared and no other method or information is available, a price can be compared to the estimate and if it compares favorably, this can be a basis to find a price fair and reasonable. The estimate, however, must be independent. Use of a Seller's pricing to make an independent estimate is NOT independent.
Pricing of Similar Goods: Comparison to a substantially similar item. Often an item is very similar to a commercial one, but has added features that are required. If the Seller can provide the price of the base item, by a catalog, and then state the costs of the additional features, the buyer can then find the price reasonable based on these two factors. Differences should be detailed and priced. The reasonableness of the extra cost can be a) checked against other purchases that had the extras, or some of them; or, b) based on an evaluation of the extra cost by technical personnel.
Sales of the Same Item to Other Purchasers: If the Seller has no catalog, but has sold the same item to other similar institutions or universities in the recent past, the price can be determined to be fair and reasonable by verifying with those other purchasers what price they paid. This must be noted in the written documentation with name, telephone number, date of confirmation and price paid.
Award Specifically Identifies Item/Person And Price: Under federally funded grant or cooperative agreement awards, if the award references a proposal that a) specifically identified the manufacturer, model and the price (only if a supplier quotation accompanied the proposal), or b) identified a specific person with an hourly rate for fixed price for that person, then the contracting officer has accepted that price as being deemed reasonable by the proposer and nothing else needs be done as long as the final price does not exceed the budgeted line item. If, however, the award is a federally funded contract or purchase order, then the proposer must formally provide rationale with the proposal to determine price reasonableness at the time of the proposal before this method of price reasonableness is acceptable. Under FAR regulations, it is the responsibility of the proposer to determine price reasonableness, either at the time of proposal or at the time an acquisition is made. It is not the responsibility of the contracting officer. Documentation (copy of the award pages related to the acquisition and any supporting documents, i.e., copies of quotations, in-house estimates, other customer invoices, GSA pricing, etc.) supporting either of the above situations must be provided to Procurement.
Contact the Procurement Services Helpdesk for any CruzBuy ordering or contract-related questions.
Help Desk Phone: 831-459-2311