The government has been asking many federal contractors to explain why their prices are appropriate and whether they can provide savings or discounts. Press reports indicate that these requests are increasing, and amid a record number of contract terminations, contractors may feel concerned that the wrong response could lead the government to terminate their contracts too.

There is no one-size-fits-all strategy for responding to these requests. The answer depends on the terms of the contract and the contractor’s long-term business goals, near-term ability to accommodate the request, and sense of what the agency might do next. Some companies may want to meet the request as much as possible, while others may want to push back or find a middle ground. While there is no one right answer, contractors should consider the following six points as they decide on a response strategy.

• The agency already concluded that a contract’s pricing is justified. Before awarding any contract, the government must determine whether a contractor’s proposed prices are fair and reasonable. See, e.g., FAR 15.404-1. The government can find pricing fair and reasonable when there is adequate price competition; where commercial products/services are priced consistent with market prices; or when certified cost or pricing data (or other than certified data, depending on the procurement) support the contractor’s pricing. See, e.g., FAR 15.404-1; FAR 15.402. The government’s source selection authority normally prepares a written determination of price reasonableness shortly before announcing an award decision.
  
  So, if the government made an award, it either expressly or impliedly determined that the contractor’s prices are fair and reasonable. Contractors may want to remind the agency of that fact, and the best approach for doing so depends on the circumstances. For example, was the contractor’s proposal selected among multiple competing offers? Was the contract awarded after a lowest-price, technically acceptable competition? Did market data show that the contractor’s pricing was highly competitive? Are there other factors to consider? Whatever the circumstances are, each contractor probably has a good reason to know that its prices are fair (it won the award, after all).
• Is the agency missing any information or making any assumptions? If the agency’s request is based on an incomplete or incorrect understanding of the work being done, then set the record straight. For example, is the agency unaware that the company’s prices account for special features, such as warranties, 24-hour service, or delivery of technical data? Does the work require special qualifications, which might inherently increase the cost of labor? A clear explanation of the facts can reduce the risk of both parties talking past each other. In some cases, it may even make sense to explain the history of the procurement, particularly if the contracting officer or customer representatives have changed since the original award or prior periods of performance.
• When drafting a response, think about the audience. Who sent the request? Was it the contracting officer? An auditor? A senior procurement official who sets policy for the agency? Depending on the responsibilities of the person who made the request, they may put a premium on different kinds of information. Whoever made the request, always remember that the contracting officer has the final say on contract administration, and is likely to receive a copy of any response. With that in mind, treat the contracting officer as a member of the audience.
• Be mindful of proprietary information and data rights. Take care when including proprietary information in a response. The government has a general obligation to protect a contractor’s proprietary information, see 18 U.S.C. § 1905, but it is still critical to affirmatively identify proprietary information and request that the government treat it appropriately. In addition, if the agency wants information that might qualify as technical data, the contractor should consult the data rights provisions in its contract and in FAR Part 27 (or applicable agency supplements, such as DFARS Part 227). These provisions may give the contractor additional grounds for declining to share information, or provide guidance on how to safely share the same.
  
  Matters become more complicated if the agency wants information about supplier costs or performance. This type of information may be protected by non-disclosure agreements between the contractor and supplier; contractors should review the terms of any supplier agreements before making a disclosure.
• Consider whether the contract has a price reduction clause. Some contracts have a price reduction clause that allows the parties to revise their price agreement, but only if the terms of the clause are met. For example, GSAR 552.238-81 applies to Federal Supply Schedule contracts administered by GSA and permits price reductions in certain circumstances where a contractor revises its commercial catalog or grants special discounts to a “basis of award” customer. FAR 52.216-2 provides for an “economic price adjustment” in various situations where the market price of supplies decreases after award. If the agency’s request is inconsistent with the terms of an agreement’s price reduction clause, then consider focusing on that issue. By directing the conversation toward the terms of the clause, the contractor can establish the ground rules of the discussion and help to demonstrate that a voluntary, ad hoc request is not appropriate.
• Read the whole contract before responding. As with all contract administration matters, companies should review their contract documentation in full when deciding how to respond. Any given contract may have unique terms that are relevant to the request. Particular attention should be given to clauses that discuss audits, performance reviews, costs, pricing, and termination rights, all of which may help guide a contractor’s decision-making process.