With budgets tightening, and proposal teams being asked to do more with less, the pricing component of a proposal has become more important. Holly Dehesa & Michael Weaver, CM Magazine

Why do contract management professionals talk about cost and pricing so much?

One of the main responsibilities of contract managers is to determine fair and reasonable pricing when negotiating new contracts and contract modifications. It’s a fundamental requirement for government contracting, so it's important for professionals in the field to be familiar with common cost and price analysis techniques.

What’s the difference?

Cost analysis and price analysis are two techniques for determining a price that is fair to both sides and may take into account a variety of market, performance, quality, contractual, and regulatory factors.

  • Cost analysis is a bottoms-up review and evaluates separate cost elements and profits or fees on a proposal to ensure cost realism and a fair and reasonable price.
  • Price analysis, on the other hand, is the process of evaluating a prospective price using relevant comparative prices or historical precedents without evaluating separate cost elements of the offeror(s).