After Competition and Price History, the “Market Comparables” analysis method is the most widely used by companies subject to CPSRs. There are several key points that you must include in every Market Comps price analysis report – we will walk through each in this webinar. We will also use SpendLogic to illustrate concepts, but the information can be applied to any documentation process.
My name is Patrick Mathern. I’m the president of SpendLogic, and I’ll be running you through the content we have today related to market comparables. So on your screen right now, you’ll see, behind me, a basic outline of what we’re going to go through. So what is a market comparables analysis? So the basic components. And then we’re going to get into details of what to look for and make sure that you don’t violate any CPSR requirements.
That’s really what we’re trying to make sure that we do. We always want to have great price analysis because that’s what’s going to lead to great negotiated pricing, but the regulatory and compliance issue is very important as well. So we’re going to talk specifically about that. And then, at the end, I’m going to get into SpendLogic and how we do these things within SpendLogic itself and show you how we dodge those common missteps that show up in CPSRs.
So let’s get started. Oh, by the way, if you have any questions, go ahead and put them in the chat function, and I can go back and answer those afterwards, or you can also just send us an email. You can write us at [email protected], or you know, [email protected] We can get you some more information there.
All right. Okay. So first of all, what we’re going to talk about is, you know, what is a market comparables analysis. Okay. So we’re talking price analysis, which means…one of my favorite things to talk about here is that we are not talking about price justification. Okay.
Price analysis, just to level set, is the process of analyzing price and comparing it to something, a proposed price, comparing the proposed price to some price that is known. All right. It’s not justifying the proposal, but it’s comparing the due and making some modifications to see whether that price is fair and reasonable, right? So in FAR 15.404-1, there are common price analysis methods.
I’m not going to say that these are the only price analysis methods. You can do things that are outside of this list. But the vast majority of you are probably doing something that fits within this. So when I say market comps or market comparables, what I’m talking about is pretty far down the list down here, the comparison of proposed items with prices obtained through market research.
Okay. So very high level, what does that mean? It means that you really don’t have historic prices paid, you weren’t able to compete it, okay, it’s not something you purchased in the past, but it is something that you can look out in the marketplace and say, “Okay, well, there are others that are offering this price.
Those prices appear to be prices that others are paying. So I can compare my proposal, maybe with some adjustment,” and which we’ll talk about, “I can compare my proposal with those other offered prices.” And, you know, this is market research. So pretty simple concept. In SpendLogic, we see this as, you know, one of the most often used methodologies in systems.
So typically, the most common is competition. Second most common is historic pricing or historic prices paid. And then a close third is market research. Parametric and published price lists, don’t get used all that often, quite honestly.
And I have a feeling that, for those of you out in the audience, you’re probably along those same lines. So some common CPSR findings. You know, when CPSR auditors in the DCMA are looking at market comparables, these are kind of the big ones that they cite if there is a finding of some sort. So first and foremost, and this is kind of…it’s a finding actually in competition rather than market comps, but what people do is they get confused between competition and market comps.
I’ll talk about that here in a second. The second one is only having one comparable item. So say I’m going to compare it to marketplace, and oh, by the way, there’s only one comparable in the marketplace, I don’t like that. We’ll talk about that. And then last but not least is insufficient support when you’re comparing two items that aren’t absolutely identical, not, you know, just doing a very surface level and saying, “Trust me, they’re the same,” or “Trust me, they’re different.”
That’s not a cut in mustard. So let’s get into each one of these. So the first one is inaccurately citing competition, and again, this is really a problem that shows up in competition rather than market comps, but the two are so close that I want to talk about here. So here’s the scenario. Somebody goes ahead, and they do a competition, and the way they compete is they go and look at website A, B, and C.
And they take the prices that they gathered from those three websites, and they call that a competition. “I competed three websites against each other.” It doesn’t work. What that is, that’s market comparables. Okay. So not only do you lose points, because in a CPSR, because now your competition percentage is lower, but you also get a ding because you don’t have a systemic methodology or policy or procedure that is accurately guiding you to accurate competition.
So for a valid competition, here’s some of the things that you need on the screen. There are others, but these are the big ones. So your bidders need to receive an RFP or an RFQ. If you never send an RFP or RFQ, then you’re most likely doing market comparables or some sort of market research.
Okay. You can’t have a competition if nobody knows that they’re competing. All right. That’s the second point. You’ve got to inform them. So you can’t inform them unless there’s an RFP or RFQ, and within the RFP or RFQ, you really need to say, “Hey, this a competitive procurement.” And one or many will be awarded.
Last but not least, make sure that everybody’s on a level playing field. So if you have a website, you know, for bidder A, and then bidder B actually gets a quote, and you’re comparing bidder B to a website, that is also not competition. It violates the top two, but it puts everybody on a different playing field. You know, the website had no opportunity to provide their best price, no opportunity to put their best foot forward, whereas bidder B got an RFP or RFQ.
So high level, that’s what you want to watch for to make sure that you’re actually competing rather than doing a market comparables analysis. So getting kind of more in-depth with market comps itself, if you cite only a single market comparable, okay, if your report compares only one price, you know, to what you’re buying, then you’re going to raise questions, in the best of times.
Okay. More than likely, you’re going to raise a lot of questions, and it very well may fail. So to get around this, you really need to include multiple comparables in your price analysis, at least two. If you can do three, great. But really, two is pretty sufficient. In some cases, what you’ll have to do…maybe there is only one directly comparable item, everybody else is a little bit different, but what you should do, and SpendLogic supports this, is you should do a…you can call one of them identical and the other ones you can call similar to.
And all you need to do to make that work is make sure that you sufficiently explain what’s different and what’s similar. And that’s the second point on the screen. So make sure it’s as comparable in scope, but if it can’t be exact, then get into the details. All right.
So that’s the last point. They have to be able to conclude that that single comp is efficient for price analysis. So I guess what I’m saying on this screen and these points is if you have only one market comp, right, there is nothing that is similar to, there’s truly only one out there, then make sure that you write your analysis in such a way that the reviewer walks away and says, “Okay, price analysis is sufficient, you know, using only one comparable.”
It takes more work. You really have to get into the nitty-gritty details on why that is. It’s doable. What would be actually preferred is citing similarities and differences, okay, and that’s my third point here. I kind of mixed that in a little bit there on the last one, but really, this is where you want to go with that.
So really work hard to over-explain, right, you got to really make your point. Remember, you got a DCMA person, or a compliance reviewer in your own company, or a peer reviewer, or whoever, that really need to be able to walk away and say, “Okay, they did a great job of explaining why these things are similar or different,” as well as, “I now understand, as the reviewer, you know, the dollar values and differences, you know, how those differences translate into a difference in price.”
So start with your similarities, okay, at the very top. One of the issues that we see when we’re reviewing packages for clients is they say that the two are highly similar. I don’t know what that means. I’ve never seen these things. You got to tell me why they’re similar, you know, what’s similar about these, and you can lean on form, fit, and function, right, which of those are similar, and which of those are different.
There needs to be some explanation of how similar they truly are. A lot of people go into details on the differences, and they forget the similarities. But really, that similarity concept is very important. All right. So start there. Next, on differences, make sure that you discuss the dollar impacts. So all too often, there’s a great write-up as far as, “Okay, here’s how they’re different. You know, it needs to fit in a different-sized envelope than what we’re comparing it to.”
And that’s great. And the dimensions can be talked about and the percent that it’s different, and all that, but then they kind of drop the ball when they get to the price aspect. Okay, well, how does that relate to price? So first of all, that second bullet there is you got to actually discuss if there is a price impact. Now, further, the third bullet is you got to discuss how you got to those values.
So let’s say that it is a different size, and you noted that, “Okay, it’s a $500 difference, and this is fair and reasonable.” Okay, why is that fair and reasonable? Why is that $500, you know, the right price for that? You’ve got to get into the details of what that is. And very often, when you’re getting into market comparables and similar-tos and modifying price for similarity and difference, you’re going to have us a technical reviewer or a technical evaluator.
So that’s going to carry a lot of weight. So if you have the opportunity, get your tech evaluator to weigh in. If you don’t have a tech evaluator, you can do it yourself by going back to the supplier and really understanding how those differences play out. Last but not least, if you have differences between the items, you know, let’s say that…here we go. You can see what’s on my desk here.
So I’m using this item and this item, and I’m comparing them, okay, and I’m saying, “Okay, well, they’re both water bottles, so they’re very similar, but one of them is plastic, and one of them is glass.” And the glass one, let’s say that it’s 10 times the price of the plastic one. Anything that is more than about 20% difference is going to be looked at as not comparable.
So if you’re doing something that you’ve got to double the price in order to make the comparison, you’re going to raise some eyebrows, okay? You’ve got to be really, really good about explaining how you came up with those differences, but in the back of your mind, you know, really pay attention to how big of a difference you’re citing, because that is going to weigh on your reviewers and, you know, lead them down a certain path, if you will.
And that path is typically a failure on that particular package. Probably the same with your compliance reviewers as well, to be quite honest. So there you go. That wasn’t planned, but that was useful, hopefully. So the next thing I want to do is, you know, I’ve told you a lot of the things that you need to do high level.
All of that that I just talked about, you got to do that regardless of the format that you’re using or whatever process or tool set you’re using for your price analysis. I’m going to show you specifically in SpendLogic. I know we have a lot of SpendLogic clients here on the webinar right now. But for those of you that aren’t using SpendLogic, take a peek. You can see how we do what we do, and maybe it’ll spark some new ideas for you in your process, or maybe it’ll bring you over to the SpendLogic side of things.
So what I’ll do is I will open SpendLogic, and this is my dashboard. For those of you that use SpendLogic, you should probably be familiar with this. And I’ve got a couple of reports here that I want to show you. So I’m going to open these.
They’ve already been completed. In this particular report that I’m going to bring up, I’m going to show you the effect in SpendLogic of just having one market comparable. So again, what I want to do is I want to show you how we guard against the issues that I just highlighted that cause failures in CPSRs. I’m going to navigate over to my market comparables report and look at price analysis in the system. So what you see here is my market comparables analysis.
I’ve got two. Actually, I have one comp. So this is the quoted price from ACME, and this second one is my comparable BATTCORP, okay, and they’re relatively close. Actually, they’re very close. You can see that I got a quantity adjustment going on and stuff like that. But for the most part, it says, “Okay, here’s my analysis value. They quoted 234. My analysis based on market comps is 240.”
When I click Next, SpendLogic is going to come back and say, “Hey, you only got one market comparable. This is going to raise eyebrows.” Okay. It doesn’t say that exactly, but it requires you to input additional information. It’s going to require you to complete this sentence, “Market research resulted in only one other comparable item.
This is sufficient for price analysis purposes because,” and then it’s going to require you to input some sort of rationale in the box, okay? That rationale is then taken and put directly into SpendLogic, and it’s going to come out in your Word report at the end, okay? So the next one that I want to look at is I want to show you what happens, let’s say that we do have two comparables, okay?
I’m going to get into the report, navigate through here. I’ll go back to my market comparables. And you can see, okay, BATTCORP is here, but now I also have BATTERY WORLD. We’re apparently buying batteries here. And you can see that BATTCORP is the lowest. I have two comps, and so things appear to be okay. What I want to show you is when I get in, and let’s say that this is a similar to, okay?
Quantity correction factor does not apply. Okay. So this…here, I said, “Okay, this is similar to the item that I’m using as a basis.” So again, if you think back to what I just discussed in the presentation, you need to make sure, anytime it’s not identical, and in this case, it’s similar to, you need to make sure that you talk about similarities, as well as differences, and talk about where those calculations came from.
So what SpendLogic has you do, as soon as you choose that it’s similar to, it says, “Okay, similar to what? Talk to me about the part number that it’s similar to.” And then it says, “List those similarities.” So right in front of you, you have a reminder, “Okay, I got to get into the similarities,” you know, not just talk about the differences.
But then I get down lower, and I also have the opportunity to list the differences in the system. So the first one, let me go back up to my similarities, it says, “Items are identical in form and function. The fit is the only differing factor here.” So as I scroll down, my differences, the first one is the outside shape, okay, dimension. And my unit adjustment is $500, and then I have the opportunity to talk about that.
I also have an opportunity to upload my technical evaluation. So if I have a tech eval, I can upload that document here. If I have additional differences that I want to talk about, and I should talk about them each separately, whether I’m in SpendLogic or not, I can add another difference here, and it’ll create another section that looks just like this.
At the bottom, in SpendLogic, it says, “Okay, the adjustment as % of the basis, 6.67%.” Okay. In this particular case, my percentage difference is not high. If I go ahead…where is it? So if I make it ridiculously huge, okay, it’s over 600%. All right. So let’s see what happens when I do that.
I go ahead, and I click Done. And as I move to my next screen, again, I get a warning that says, “Hey, you know, in order to get your market comp price of 7,500 bucks, you had to adjust it by more than 20%.” Okay. So what I have to do is I have to finish this sentence, “Otherwise, complete this sentence. Although the adjustment of 667% has a material impact on price, it is considered valid because.”
Okay. That’s going to do a couple of things. Number one, it’s going to call attention to the fact, because the CPSR reviewer and your compliance reviewer should already know that you have a huge, you know, modification to price, so it’s going to call attention to why that’s okay. Now, if you see that 667% and, like me, you’re saying, “Okay, that isn’t going to make sense,” you can also go back and modify that, you know, and fix that so that it’s not in there.
And that’s probably what you should do in this particular case. So I’m going to go back and pull that back out. And I’ll show you, you know, what the report looks like here. So if I take the zero back out, get myself back to normal, click Done, okay, it’s going to, automatically, all my changes are updated in the written report.
I have no warnings on my risk check. So as I go to next, it brings me to Report. I download it, and I’ll go ahead and open this report. Here we go. And I’ll just show you what it looks like. One sec. There we go.
Okay. So those of you that are familiar with SpendLogic, you know that it outputs in Word. So if you do have modifications, you can go ahead and make those there. As I go down, you can see my 234,000 and my 240 on my cover sheet. And I’ll just show you very high level what it looks like in my documentation down here. So here, you can see my $500.
Okay. Everything that I’ve chosen from the list boxes and everything has been brought into a Word report automatically. You can see, here’s my differences. You can also see, here’s my final adjusted price, $8,000 is my quoted, plus my adjustments. And here’s…I uploaded a tech eval, a fake tech eval in the system, and you can see where that is here.
That’s included in the download file that I downloaded here. So that’s it, kind of, not kind of, but very high level. If you have any questions, I’m looking over at the chat sheet here, and it doesn’t look like there are any. But if you do have any questions, please reach out to us at [email protected] We’d be happy to hear from you.
We’re also interested if you have things that you want to talk about, anything price analysis, cost analysis, if you want to talk about commercial items, any of that stuff, we’d love to have additional webinars on that in the future. If you want to see our past webinars or you want a free SpendLogic license to try for yourselves, you can check it out at spendlogic.com, and there’s different links there on the website that you can do that.
Thank you, everybody, for logging in and checking out the stream today. I look forward to seeing you again in the near future.