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It’s All About “Fair and Reasonable”
FAR is the rulebook the federal government follows when buying anything, from fighter jets to office supplies. It’s codified in the Code of Federal Regulations (CFR).
The FAR is supplemented by the Defense Federal Acquisition Regulation (DFAR). For defense work, DFAR impacts you, but the differences aren’t that relevant, so we’ll just refer to the FAR.
The idea is simple: the government wants fair and reasonable deals. Those words—“fair” and “reasonable”—are the heart of the FAR. By law, the government is allowed to pay fair and reasonable prices, and no more.
The FAR doesn’t stop at the government’s front door; it trickles down through prime contractors to all subs (that’s you).
Who Decides “Fair and Reasonable”? The Contracting Officer
If the FAR were a movie, the Contracting Officer (CO) would be the star. This person has the power to commit government funds. The role of CO extends to any sub-contractor (think Boeing) and to sub-sub-contractors (like EMS companies).
Everything a CO does has to scream “fair and reasonable,” and they need to document it. Your mission is to help them prove that buying from you checks those boxes.
The CO may also need to enforce contract provisions. These are called flow-downs. Watch out for flow-downs!
Pro Tip: New COs are indoctrinated to believe that if they violate the FAR, they could be fined or arrested. While this is untrue, it is effective in striking fear into new COs. When you encounter someone like this, be sympathetic. It’s not their fault; the fear will subside as they gain experience.
The $250,000 Question
Deals under $250,000 are called “simplified acquisitions,” and the rules are looser. Below $10,000, they get even looser. Over that $250k threshold, COs start breaking out terms like price analysis and cost analysis.
Determining Fair & Reasonable
Your friendly neighborhood CO has two methods for determining (and documenting) the fairness and reasonableness of acquisitions over $250k:
- Price Analysis: Solicit two or more competitive bids, evaluate quality, delivery, expertise, and price, and then the CO picks the best option. It’s not just the cheapest; you’ve got room to shine with reliability and innovation.
- Cost Analysis: When you’re the only game in town, things get intense. Expect your costs—materials, labor, overhead, profits—to be dissected like a high school frog.
The CO can choose the method. Which method should you prefer? The easy answer is price analysis. Cost analysis will almost certainly require a sophisticated understanding of the process, way beyond the scope of this article. If you make something that is effectively sole-sourced and you anticipate quoting on opportunities over $250k, you should probably get a consultant to help with your first cost analysis.
The Big Three Contract Types
Once you pass the FAR quoting process, you’ll likely land one of these contracts:
- Firm-Fixed Price (FFP): A straight-up deal where you deliver your product at a pre-agreed price. No room for surprise costs. Great for well-defined acquisitions—like your amazing product.
- Time and Materials (T&M): A pay-as-you-go model for undefined projects. More common in design or development work.
- Cost Reimbursement: For when the scope is as murky as government red tape. You get reimbursed for allowable costs but need airtight records.
Expect to see mostly FFP.
Fear + Inexperience Rolls Down Hill
Remember our new CO? They are often uncertain about what they need. So, they demand everything under the sun, just in case. This can impose unreasonable and unnecessary burdens on you. When you encounter this, adopt a consultive approach and demonstrate that you understand their concerns. Here are a couple quick questions to help you help them:
- Is this acquisition over $250,000? If not, politely point out that it is a simple acquisition.
- Will this acquisition be a price analysis or a cost analysis? This is the most important question and likely the most confusing. Try to be clear on this upfront; the burden on you will be very different.
- The Customer is Always Right. It’s your job to provide helpful insights, not get into an argument. It’s helpful to remember it’s a free country. Your customer can impose whatever rules and restrictions they want, including FAR rules, even if they are not legally necessary.
Things to Watch Out For
- DPAS Rating: Defense Priorities and Allocations System (DPAS) ratings prioritize resources for the national defense. You are required to accept an order with a DPAS rating, commonly called ‘rated orders,’ unless you can’t fulfill the requirement or you have a higher-rated order ahead of it. You are also required to flow down the DPAS rating to your suppliers. If you’re late on a rated order, you might get a call from an angry Lt. Colonel or even a General. Not fun.
- DCAA Audit: DFAR is enforced by the dreaded Defense Contract Audit Agency (DCAA). If they smell something fishy, they will conduct an audit. Common audit triggers are bad accounting records and inconsistent documentation. Don’t give your CO a reason to sweat; they’ll drag you down with them.
- Ethical Landmines: The FAR expects transparency and integrity. No funny business, no kickbacks, no shady pricing. Anything that smells off can end badly for everyone.
The FAR Isn’t All That Bad
The FAR is complicated, and compliance can feel like jumping through flaming hoops. But at its core, it’s a blueprint for fair business practices. It’s the government’s way of saying, “Let’s avoid rip-offs and do this right.” Focus on clarity, organization, and understanding your customers’ needs. The FAR doesn’t have to be frustrating; instead, it can be the reason you win.
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