Fin 230 - Fair and Reasonable Pricing/government Contracts

Fair and Reasonable Pricing/Government Contracts

FIN 230

Although the meaning is different to different people, fair and reasonable pricing is mainly when both the buyer and the seller are satisfied with the outcome of the transaction. Several factors need to be met in order to determine whether or not a price is fair and reasonable. According to John Murphy, (1) the government prefers market-based pricing over cost-based pricing to judge fair and reasonable pricing and (2) cost-based pricing is appropriate only when the forces of the marketplace cannot judge fair and reasonable prince (p. 4) By examining the established five means used to arrive at a fair price, four of which falling under market-based prices and the fifth being cost-based prices, one can get a better understanding of how this is established.

Market-based pricing include competitive offer pricing, established catalog pricing, established market pricing, and prices established by laws or regulations. First, competitive offers are popular because they allow more than one buyer to submit offers which eventually help to establish what the fair and reasonable price is. Second, catalog pricing states current prices to include discounts which are always favorable because they show that the seller is willing to offer the goods or services at the published prices (Murphy, 2005). Next, using established market prices show that the seller is willing to offer goods at the prices that are set across the market with other companies with similar products. Finally under market-based pricing, prices established by laws or regulations are favorable because they are established by authorities who created a ceiling for the price, which ensures that it does not go too high. When competitive pricing cannot be relied on, cost-based pricing can be used. The buyer can demand that the