Price Reasonableness for Software Companies: How Contracting Officers Judge Your Price

2026-10-23#saas #federal-market

By Philip Luca — Founder of GovExpress; prior domain experience at Bloomberg Government and GovWin IQ.

No federal contract is awarded until a contracting officer writes down that the price is “fair and reasonable.” For a software company, that one finding explains a lot of what happens during a bid: why a contracting officer asks for your price list, why a single-bid award draws more questions than a crowded one, and why the discount you gave one customer can follow you into a government negotiation.

This guide explains how that finding is made, what information you can be asked for, and how to have it ready before you bid.

Where the rule comes from

The FAR tells contracting officers to buy supplies and services at fair and reasonable prices, and it sets out how they reach that judgment. Most of it sits in FAR Part 15, with shorter versions for simplified acquisitions in Part 13 and for GSA Schedule orders in Part 8.

The FAR is being rewritten through the Revolutionary FAR Overhaul, and many agencies now apply the new text by class deviation, so section numbers and wording may differ. Check the solicitation and the current FAR text for the rules that apply to a given buy.

Price analysis, not cost analysis

There are two ways to judge a price. Cost analysis examines what it costs you to deliver: labor, overhead, profit. Price analysis compares your price with other prices without looking at your costs.

For most software purchases, contracting officers use price analysis. The FAR lists the techniques, and names the first two as preferred:

Comparison with other offers received for the same requirement, when there is adequate competition
Comparison with prices previously proposed or paid for the same or similar items
Comparison with published price lists, published market prices or discount arrangements
Comparison with an independent government cost estimate
Comparison with prices found through market research
Analysis of pricing information supplied by the offeror

When two or more independent offers compete for the same requirement, the competition itself usually establishes reasonableness, and you’ll rarely be asked for more. The questions start when competition is thin.

You’re usually exempt from certified cost or pricing data

Above a dollar threshold, the Truthful Cost or Pricing Data rules can require an offeror to submit certified cost or pricing data: a detailed cost breakdown, certified as current, accurate and complete, that can lead to a price reduction if it later turns out to be wrong. Few software companies want to open their books this way.

The FAR exempts several cases, and two cover most software sales:

Adequate price competition. If the award follows real competition, certified data isn’t required.
Commercial products and services. Software that is sold to the general public, or offered for sale, is exempt. Our guide to commercial products under FAR Part 12 explains how that status is established.

The commercial exemption isn’t a blank check. The contracting officer must still find the price reasonable and can ask for data other than certified cost or pricing data. For a commercial product, the FAR points first to pricing information: prices at which the same or similar items have been sold. An offeror that refuses a proper request can be found ineligible for award.

What a contracting officer may ask for

When competition alone doesn’t settle the question, expect requests like these:

Your published price list or a link to your public pricing page
Recent sales of the same product at comparable volumes, often with customer names removed
Your discount practices: standard volume tiers, multi-year discounts and the largest discount you’ve given
An explanation of differences between what you’re quoting the agency and what commercial customers pay, such as added security controls, a separate hosted environment, or different support terms

Requests should be limited to what’s needed to judge the price. If one feels broader than that, ask the contracting officer what the information will be used for, and offer the narrowest version that answers it.

GSA Schedule pricing

On the GSA Schedule, the reasonableness question is answered once, when the contract is awarded. You disclose your commercial sales practices, GSA negotiates against your best commercial pricing, and the agreed rates become your ceiling prices for every order.

That has two consequences for software companies:

The Price Reductions clause. Most Schedule contracts tie your price to a named commercial customer or category of customer. If you later give that customer a better price, the reduction may have to pass to the government. Contracts that use Transactional Data Reporting replace this tracking with regular reporting of order-level prices.
Orders still get price pressure. Ordering agencies don’t redo the reasonableness finding, but they evaluate prices on each order and must ask for a reduction on orders above the simplified acquisition threshold. Requests for quotes on eBuy often say so directly.

If you sell through a reseller, the reseller’s Schedule pricing is what the agency sees, and your commercial pricing sits behind it.

When only one offer arrives

A competitive solicitation that draws a single offer is treated with suspicion. Department of War buys have a specific rule for it in DFARS 215.371: the contracting officer may have to reopen the solicitation, or analyze the price more closely and ask the lone offeror for more information. Civilian agencies apply similar caution in practice.

If you’re the only bidder, prepare for that conversation before the award. Have a recent price list, comparable sales and a one-page explanation of how your government price relates to your commercial price ready to send.

How to prepare before you bid

Publish or document a price list. A dated, public price list is the easiest evidence a contracting officer can use.
Keep discounting consistent. Uneven discounts make your list price hard to defend, and on the Schedule they can trigger the Price Reductions clause.
Price federal differences explicitly. If a government deployment costs more to run, list it as its own line, such as a FedRAMP Certified environment or dedicated support, rather than marking up the base product.
Match license terms to the price. Seat counts, term length and renewal pricing all affect the comparison. Our guide to software license terms in federal contracts covers the terms agencies push back on.
Read the evaluation method. Under tradeoff or LPTA the agency still has to find the winning price reasonable, so a low price you can’t explain is a risk as well as a high one.

To see how your company measures against the factors evaluators tend to weigh, score your company’s federal readiness.

Frequently Asked Questions

Do software companies have to share their costs to sell to the federal government?

Usually not. Commercial products and services are exempt from the requirement to submit certified cost or pricing data. A contracting officer can still ask for other information that shows the price is reasonable, such as a price list, published pricing or recent sales of the same product.

What does 'fair and reasonable' mean in a federal purchase?

It's the finding a contracting officer must make before awarding. It's normally reached by comparing your price with competing offers, past prices for the same thing, published or market prices, or a government estimate, rather than by auditing your costs.

If I hold a GSA Schedule, does an agency still check my price?

GSA has already found Schedule prices fair and reasonable, so an ordering agency doesn't repeat that finding from scratch. It still evaluates prices on the order and must ask for a price reduction on larger orders, so expect to be asked for a discount.

The CMMC brief

What the Phase 2 suspension changed and what it did not — the obligations that still bind, the assessment path a contract puts you on, the scoping decision that drives the cost, and the sequence that fits inside a pipeline. Sourced from the primary record.