Basing a price analysis on a competitive published price list is a common practice. The trick is to prove that the price list itself is representative of the price others are paying. In this webinar, we will discuss how this is most often done in the industry. We will discuss the most common CPSR pitfalls and how SpendLogic helps companies avoid findings in this type of price analysis.

Transcript:

Thank you for joining us today. As always, if you have any questions along the way, be sure to just put your question in the chat box. If the chat box is not working for you, if you don’t sign in to YouTube, you can go ahead and send us those questions at [email protected]. We’ll get back to you via email or at the end of this session, I’ll check the questions and answer them at that point.

So, we are going to get started here. Today, we’re talking about price analysis. My name is Patrick Mathern. I am the founder and president of SpendLogic. We’re talking about a particular flavor of price analysis. And this one is competitively published price list. This is something that is quite often used in the industry, and it’s something that is quite often cited in CPSR findings.

So our goal here today is to explain how to avoid those findings when you’re creating a analysis based on published price list. And at the end of this, I’m going to show you how we actually do that in SpendLogic. So what SpendLogic is, is an automated price analysis tool that is based online. And it’s available for a free download if you have just one user or if you’re a small business.

If you have multiple users, then we have subscription plans. But if you’re subject to a CPSR and you’re having findings with price analysis, commercial item determinations, or source justifications, we can provide you with tools and solutions that can help. So, let’s get going here. So I’m going to start out by defining, okay, what is it that we’re talking about?

What is a published price list analysis? So, first of all, it fits in the list of the price analysis methodologies in 15.404-1. So you can look down the list and you’ll see that about halfway down, you can see it in red right here on your screen, competitive published price list shows up.

I’m going to talk through…you know, we’re going to have sessions on each of these. We’ve gone through several. Published price list is usually used, kind of fourth in the list. The flavors of competition, then historic, and then market comps or market comparables, and then you get into competitively published price list.

So that’s where we’re going. So when we talk about competitively published price list, there’s really two flavors that we’re looking at. Okay? And quite honestly, one of these flavors is far more common than the others or than the other one. So the first flavor is the by-the-book competitively published price list.

So what that means is that you’ve got a website or some sort of a catalog that’s posted for people to view. The prices in that catalog are directly related to market forces. So this is what people are buying and selling. You can go to the catalog anytime.

You can buy it straight from the catalog. So, you know, online catalogs are one way to look at this. Think of amazon.com. That’s kind of a poor example because that’s a COTS marketplace. But, you know, if you have something like that where you can truly buy it, and that’s what people are buying it… the price people are buying it at, that’s the best-case scenario. Far more common, okay?

What we typically see with our clients is, you know, category number two, an internal price list. You know, you say, okay, your supplier says, “I’ve got a price list. The price that we’re offering is based on our price list.” And you have to say, “Okay, great, give me a copy of it.” Okay, now it’s not published, all right? It’s technically published, but it’s not available to the public.

You don’t really know if the price is in there or what people are paying. They might give you discounts and rebates off the list price. It gets a lot more complicated. For this reason, category number one, that truly competitive, published competitive price list is going to be a lot safer, okay, if you can, you know, show that this is truly the case. The second category is far more common, but it’s more risky as well.

Now, I’ll say that as I go through this, you know, and the pitfalls in CPSRs actually apply to both. And that’s because what you’re trying to do in both cases is show that the price is actually paid by other people and that, you know, benchmark is there for both of those. So, in reality, as you write a price analysis, you treat both of these the same.

Some of you out there are going to say, “Ah, if it’s not published, we can’t use it. If it’s not competitively published, you know, it doesn’t meet the requirements.” But I’m going to show you how it actually works in the industry. We’ve been doing this a long time and this is what we do. So there’s three findings in a CPSR that are most common with published price lists. Number one, it doesn’t meet the bar of competitively published.

I’m going to talk to you about that. Number two, the prices offered aren’t proven to match what prices are actually paid. This is a big one, and it applies to both. And number three, insufficient support of similarities and differences. Okay? You’re not telling the story, you’re saying this item is different. It’s similar to something that I’ve purchased off of a price list, but it’s not quite there.

If you don’t lay that case out well, you’re going to get a finding and I’ll talk about that. So the first one doesn’t meet that definition of competitively published price list. So, you know, some of the ways that you can get around this, right? The first thing I’m going to say is you’ve got to attempt to compete this.

If you can use history or market comparisons or something else, you’re going to get further along. So if you have a case where it’s very clearly, you know, competitively, you know, it uses market forces to set the price, this is truly what people are paying and the price list is published for anybody to get to, then great, go ahead with this.

But if you have the opportunity, always if you have the opportunity to compete, you should do that first, but then use history or market comparables after that. Now, if you do need to use published price list, this is what you got to do. The second bullet there require redacted invoices. So really the bar that you have to meet is you have to show that the price list that you’re relying on, that you’re being offered a price off of matches prices that people are actually paying.

An example is like if you go buy a used car, okay, you’ve got a price list, you know, the dealer has a list of the prices for the cars, and you can go out and, you know, you can take a screenshot, a picture on your phone of the lot, and they’ve got it in paint on all the cars.

Okay, there’s your offered prices, but we all know that those prices don’t actually reflect what people typically pay. There’s going to be some sort of a rebate. There’s going to be negotiations. There’s going to be something so that the price doesn’t match. And that’s the problem that you get into with catalogs. The DCMA and a CPSR is going to want to see that you’ve done your due diligence to prove that the price in the catalog is somehow related to the price that you’re being offered or the price that you’re paying.

Part of that, like I said, get redacted invoices. So ask what other people are paying. If your supplier is unwilling or unable to do that, you’re really running into a brick wall and I would not use this methodology quite honestly, because it doesn’t match up. You have no way to show that this is reality. If they do provide you with those redacted invoices, bullet number three, get part number, quantity, and price paid.

Okay? You also want to get dates those are paid so that you can show that it’s recent or whatever. Each of those things is going to help you tell that story. Part number. If you’re buying a different part number, you’re going to have to explain similarities and differences. We’re going to talk about that in a minute. If you’re buying a different quantity, so the invoice shows that they sold it for quantity 1, and you’re buying 50, you’re going to need to explain how the price differs, right?

So you should be paying a lower price for a larger quantity unless price breaks are, you know, beyond the quantity that you’re buying. And that price paid obviously goes with the quantity and the date. You want to be able to show that, you know, with escalation, that the price is fair and reasonable taking that into account. Last but not least, you got to note whether rebates are customary.

So again, in a lot of cases, they’re going to have a list price, but nobody pays list price. You know, if you’re a good customer, then you’re going to get 20% off list, you know, maybe 30% off list or something like that. So you’ve really got to talk about that, that catalog isn’t necessarily indicative of what people are actually paying.

And you got to tell that story in your price analysis. The second finding is that, and this is highly related to what we just talked about, but the prices offered are not proven equal to prices paid. Again, it’s the same basic problem with, you know, a catalog not being proven to be competitively priced or competitively published.

The same fixes apply. So no matter how you use your published price list, you’ve got to hit that same bar. You’ve got to get those redacted invoices. Again, if you can’t get redacted invoices, you’re going to have a really tough time getting this through a CPSR reviewer. You’ve got to show that quantity, you got to show the timing, you got to show the part number, and you got to show that rebates are or are not customary.

So you got to go through each of those steps. Last but not least, you’re probably going to get cited. If you’re not buying the exact same item that’s shown in the price list, which is the case more than half the time, then you need to really be able to show why your part number is different than what’s shown in the price list and then explain the similarities and differences. Notice that I said similarities and differences.

The first place you should start is to say, “This is how these items are the same.” Okay? And then get into your differences. You know, remember, the DCMA reviewer, the CPSR reviewer, even your internal compliance reviewer isn’t going to necessarily know anything about these two parts. You know, how similar they are, how different they are.

So you really have to set out both sides of that equation. Similarities and differences, okay? For your differences, talk about the dollar impacts. So, you know, the difference is, you know, the price list shows a certain color. This is a specific color that we need, it’s Army green or whatever. So you’ve got to talk about, okay, they had to set up a separate paint booth or whatever, and they had to special order this perfect paint, you know, whatever it is.

Talk about what those differences are, but then get into the dollar impacts if there is a dollar impact. If there’s not, then discuss that as well. Just say it’s the same price being charged. You know, once you get into those dollar impacts, talk about where those calculations came from. So if it’s a 5% difference in price, okay, how did you determine that 5% is reasonable?

What was the internal calculation that you did to say, “Okay, this is a price that I’d be willing to pay?” Explain your thinking. Tell the story. That’s all this is all about, telling the story. And last but not least, if you have a large difference, you know, in price due to your differences in scope, it’s going to get questioned.

Typically, what we do is we say, “Okay, if it’s going to be over a 20% difference, then you’re going to have to have a really, really good explanation.” If it’s over 50%, you know, in some cases, we’ve seen reports where people are doubling the price to make up for the difference, that’s going to get flagged, and the DCMA is going to come back and they’re going to say, “Listen, if you’re doubling the price because of this difference, you have a different item.”

And they’re going to expect to see some other form of price analysis, you know, not a published price list. Okay? All right. So those are the basic, you know, high-level ideas on, you know, how to write a published price list analysis. You can do that in any format that you want.

There’s no prescribed format as you know by the FAR, lots of ways to do this. But I’m going to show you the way that we do it in SpendLogic. So SpendLogic is a tool that we sell to our clients and it covers all of the price analysis methodologies that are included in the FAR.

Now you don’t have to use the FAR methodologies, but most companies subject to a CPSR do. It’s what’s recognized by the DCMA and you kind of keep yourself on the up and up and out of the risk territory. So what you’re going to see here on the screen is a report that I’ve already created. You can see that my method here is a published price list.

I’m not going to go through all the screens here. I just want to show you a couple of things, you know, related to what we just talked about. So, as I get into this report, I’ve already skipped to the end here, but as I get into the report, it’s going to ask me, okay, what is my quoted price? How many units have I been quoted? And then as I move down my left-hand side, I’m going to get into the details of that published price list.

Okay? Notice that one of the first things that it talks about is terms and conditions, okay? The DCMA is going to want to know that you’re buying these under similar terms and conditions. Okay? So, yes, they’re same or similar, or they’re not. If you say that they’re not, then it’s going to ping you and say, “Hey, you got to tell me some more information so that you can actually make this comparison.” As I get into the Basis Price, this is where we’re really getting into the nuts and bolts of the analysis method.

So what SpendLogic is going to ask is, how did you determine that the price list represents prices other customers have paid? Okay, that’s the basis of what we just talked about, right? There’s a couple of ways that SpendLogic helps you do this. If the subcontractor provided recent invoices from other customers, great, okay? Or it’s purchased on the web or a catalog and the price is shown.

So these are the two methodologies that I just talked about with how you can get over the scrutiny on this type of methodology. You can also choose Other and you can type your own. It’s going to increase risk, but I’m not going to tell you that these two methodologies are the only ways to do this.

If you have a valid methodology SpendLogic will help you support it. As you go down, it’s going to ask you your catalog name or your website. It’s going to ask for the URL, it’s going to ask for invoices and then as well as the, you know, quantity on invoice or the quantity on the catalog, the price, and the delivery date. So what that’s going to do in the background is it’s automatically going to…and you can see it on the left-hand side, it’s going to ping you and say, “Okay, you need to complete escalation, right?”

Choose the escalation that applies. And you can see we’ve got escalation preloaded, and it’ll do the calculations for you. It’s then going to ask you about your quantity correction. Okay? You’re buying four, your quantity that you cited on your public price list is for 35. Okay?

So SpendLogic is going to expect a price increase. You can tell it no that you don’t have one, or you can say, yes, I do have a price increase. I either know quantities and prices, or I want to apply standard factors. It’s going to automatically apply those in the background. But what you’ve done now is you’ve shown that you’ve done your due diligence to make sure that the prices that are being offered and the prices on the redacted invoices have been made to represent apples to apples with what it is that you’re actually buying.

And last but not least, the complexity factor I’ve said here that it’s identical, but if you have a similar too, SpendLogic is going to walk you through and notice the first thing we do is we talk about similarities. So it’s going to ask you, “Tell me the similarities,” and then it’s going to allow you to get into the differences. You can describe the difference. You can apply your dollar values and then you can go ahead and explain how those were calculated.

Down at the bottom, you’re going to see an adjustment percentage. If that adjustment percentage gets too large, SpendLogic is going to then give you an alert that says, “Hey, you know, this is over 20%. You really need to make sure that you’ve done your due diligence.” If it gets too large, it’s going to say, “This is a risk item and we don’t recommend that you do this.”

It’ll still allow it if you want to explain it, but it’s going to give you a very strong alert so that you really pay attention to what it is you’re doing. All right, that’s it in a nutshell. A large nutshell, a fast nutshell. I don’t know how you want to say that, but appreciate you watching. Hopefully, that was informational and gave you some new insights into this methodology for price analysis.

If you have any questions, you can always reach out to us at [email protected]. Go over to our website, spendlogic.com, and you will see a link to webinars. So this webinar will be posted there as well as all the past webinars that we’ve done with the other methodologies. Thank you very much.

Click Subscribe if you want to be notified of future webinars, and we look forward to seeing you sometime soon.