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6. GATHERING AND EVALUATING DATA FOR PRICE ANALYSIS Table of Contents 6.3 Considerations Regarding Data Appendix 6A: Industry Associations 6A-1 6. Gathering and Evaluating Data for Price Analysis
This chapter addresses sources of price data, price data considerations, and the evaluation of price data elements. Generally, data are classified in one of two ways: 1.) cost and pricing data or 2.) information other than cost and pricing data. For the purpose of discussion throughout this chapter, the general term "data" is utilized and refers to both of these types of data. When a distinction between the two types of data is necessary, the specific terms will be used. Table 6-1 provides definitions and examples of essential price data terms. Table 0-1. Definitions and Examples of Price Data Terms
Government acquisition policy concerning price data requirements has changed significantly. The purpose of this change is to minimize the burden experienced by both the Government and the contractor that 6.1.2 General Price Data Considerations The preceding chapter, "Price Analysis", explained the concepts, techniques, and issues relating to price analysis. Data are essential components of that analysis. There are three sources of data:
Within each of these sources there are several types of data. Deciding which sources to use; how much and what kind of data to collect; and how to organize and use data are the goals of the data gathering task. Table 6-2 is an adaptation from the ASPM which outlines various issues to be considered when gathering price data. Table 0-2. Concerns for Price Data
The source of data is an important consideration when evaluating the validity and reliability of data. The following sections examine the three sources of obtaining data (Offeror-supplied data, Government data, and industry and company-specific data) and point out the issues to bear in mind when utilizing each. 
Offerors submit proposals for an acquisition which contain considerable amounts of data. To ensure essential data are supplied, specific data requirements should be included by the FAA in the solicitation for proposals. If cost and pricing data are not required, submitted data should include, at a minimum, prices and quantities at which the same or similar items have been sold previously. Depending upon the procurement situation, the analyst may need to review offeror-supplied data as part of determining fairness, reasonableness, and realism. However, the goal of these offerors--to maximize profit while seeking to remain within a competitive range--should be considered by the analyst when evaluating the validity and reliability of such data. Data from Previous Contracts Data from previous contracts include past quotations, offers, and prices. However, comparability of products under the proposed and previous contracts and applicability of past prices to current prices must be considered. These data are subject to the same scrutiny as all historical data. These criteria are discussed in section 6.3. Estimates Sometimes Independent Cost Estimates (ICEs) are available. (See Chapter 5 for information regarding ICEs). Before using an ICE, the analyst must know the basis for it; have an idea of the reliability of the estimate and how the estimate was made; what information and tools were used; where the information came from; and how earlier estimates compare to resulting contract prices. If available, the purchase request estimate can be used to identify discrepancies in the ICE. GSA Catalogs/Databases There are two types of catalogs: Government catalogs (many of which are catalog arrangements) and contractor catalogs. Catalog arrangements are similar to commercial catalogs and cover prepriced spare parts (material for separate supply and replacement for required maintenance, overhaul and repair of equipment). Two examples of catalogs are the General Services Administration (GSA) and Government Technology Services, Inc. (GTSI) catalogs. Similar to catalog arrangements are federal supply schedules that identify commercial products or services on schedules at a competitive price and with favorable terms. All of the above are acceptable sources of data. The Federal Procurement Data System is an automated database which identifies current Government contractors, what was purchased, and whether the purchase was competitive. It also has information about past procurements of the same or similar supplies or services. The Federal Procurement Data System can be accessed through GSA who maintains the database. GSA publishes general procurement information in their "Annual Federal Procurement Report". GSA also provides more detailed information upon request. Other Government Data The Census Bureau, Bureau of Labor Statistics, the Bureau of Economic Analysis, and many other agencies collect, maintain, and report pricing data of thousands of products, services, and commodities. This information is often in the form of indices which can be used to adjust current data to reflect historical information. When using an index, be certain to select the index which reflects the consumer role assumed by the Government. For instance, is the Government acquiring a finished good (like computers) or intermediate materials like copper wiring or machine parts? An index should be chosen according to the good purchased, regardless of its finished product. For instance, assume the Government acquires memory chips for an aircraft computer. Memory chips--not the aircraft computer--should be the basis for selecting an index. Sometimes data do not provide sufficient insight into prices. If this situation occurs, there are several sources of additional help. For instance, there are many experts within various Department of Defense (DoD) branches who are available for advice on construction costs, product design, manufacturing, and pricing. By contacting the cost centers of the various branches of the DoD, one can be referred to a point of contact for a specific area or expertise. In addition, the National Technical Information Service publishes technical data, which are available for a fee, on a wide range of products. This service is very useful because information from this source can be utilized by the analyst to determine technological advances in a product which may affect the product�s quality, comparability, and price. 6.2.3 Industry and Company-Specific Data Industry data are what the name implies: data which describe the market as a whole. One example of industry or market data is the market price of a particular good. The market price is the price which results from the forces of supply and demand acting on the manufacturers of the good being priced. Catalog prices represent a contractor�s stated price, which may or may not reflect the true market price of the item as determined by forces of the marketplace. Company-Specific Data 
Catalogs are the primary source for company-specific data. The Internet has many on-line catalogs. A search engine (e.g., Infoseek or Yahoo) can be used to locate catalogs by entering search terms such as the generic name of the product (e.g., computer instead of Macintosh), catalog, and any other descriptors. Another source is the Tuesday edition of the New York Times ("Science" section) which includes several ads for computer and electronics equipment. Industry Data Industry or market data is a broad category which includes informal telephone quotes, prices advertised in trade journals, or formal market surveys. Trade associations, user organizations, and individual companies regularly provide information. Appendix 6A (located at the end of this chapter) lists several industry-specific associations, directories, and journals. The most exhaustive list of trade journals is available in the "Index to Periodicals" at most large libraries. 
There are many reference publications which provide industry data. For example, Manufacturing USA is an excellent source of industry data. Although it does not list market prices, it includes a list of leading companies and their phone numbers. Furthermore, the information is supplied at the four-digit SIC code level. Buyer�s guides provide purchasing advice to consumers and the guides are available for many goods and services. One example is Consumer Reports which provides an objective analysis of many consumer goods. Analyses provided in buying guides incorporate many factors. Price is usually a major factor but quality and performance are also considered in the evaluation process. As a result, the lowest priced product may not be rated the highest. Instead, the product option with the best combination of quality and reasonable price will be recommended to the consumer. Other buying guides can be found in industry-specific journals or in general publications such as Business Week.
6.3 Considerations Regarding Data The cliché "garbage-in-garbage-out" is most appropriate when speaking of data. When faulty data are used to arrive at a decision, the decision is most certain to be unwise. Unfortunately, data problems are elusive because data are generally presented as numbers which have no intrinsic value. The difficulty lies in analyzing the data and identifying areas of error. Examining data requires familiarity with the task at hand (price analysis in this situation) and the data itself (what problems are likely to need correction). The following sections discuss the general considerations for gathering data: timing, quantity and kind, quality, and use of historical data. To be useful, data must be collected in a systemic and timely manner. This means that data needs such as scope, sample size, and horizon must be anticipated to budget adequate time for data gathering. The method of organization and sources of data should be decided early in the data gathering process. If a market survey is necessary, time for survey preparation and data collection and analysis must be scheduled. If informational quotations will be used, time for advertising, source selection, mailing, and response should be scheduled. In procurements where you are not familiar with the technical issues, decide in advance what technical assistance will be needed and make the necessary arrangements. In essence, an analyst must know how much and what kind of data are needed with the product or service to be acquired. The quantity of data available for an analysis is important. Generally, the largest possible sample (without generating excess burden on the Government or the offeror) is preferable because a larger sample size reduces the effect of abnormally high or low prices. The kind of data refers to the information conveyed (e.g., wholesale versus retail prices). Since gathering inappropriate data often necessitates repeating the gathering process, the kind of data to gather must be considered carefully before beginning the process. In short, the objective is to obtain the data that are necessary to determine and demonstrate the reasonableness of prices. Three components determine quality of data: accuracy and relevancy, completeness, and currency. Accuracy and relevancy relate to whether the product is in stock and whether the products for which data are available and the product being acquired are comparable. Completeness pertains to the inclusion of information on sale prices to dealers and price differentials for warranty, material, and design. Currency considers whether the information is so outdated that it is useless because the circumstances have changed. Accuracy and Relevancy Several situations or factors may affect the accuracy and relevancy of data. A vendor may artificially inflate prices in anticipation that the negotiation process will reduce the price. This renders the proposed price invalid. Another consideration is the market for the product or service. In an environment with perfect competition, the prices of goods and services accurately reflect the true costs involved, and profit will not be overstated (understated) due to excess number of buyers (sellers). Published prices are better than phone quotes because published prices must be upheld by the vendor. In contrast, phone quotes are subject to conjecture and can be denied later. There are several other guidelines an analyst can follow to determine the accuracy and relevancy of a price. The analyst should verify that the good is for sale at an advertised price and analyze the conditions affecting the offered price, i.e., the terms of sale. For instance, the price must reflect the quantity that the Government requires. Prices are generally lower when large quantities are purchased. Therefore, a reduced price may not be applicable if the Government requires a minimal amount of units. Discounts for early or prompt payment should also be considered. In addition, the analyst should compare the advertised product to the actual product being offered and to required specifications. Other situations that require verification of accuracy, relevance, and comparability include:
Completeness An offeror may not provide all the data that are requested and/or needed in a solicitation. Incomplete data can impair the evaluation of an offeror�s proposal as the analyst may not be able to determine fairness, reasonableness or realism. Also, sometimes the data which are provided may be skewed and subsequently will not present the entire picture. When asked to submit information on past procurements, the offeror may selectively provide the most favorable information. This could lead to undue bias in the presentation of data. Another cause of bias occurs in published or proposed data which do not reflect price differentials for warranty, material, design, and maintainability. Such incompleteness may cause a particular vendor to appear to more favorable to the Government when compared to others because it excluded items such as a warranty, which were included in the other vendors� prices. The use of historical data is appealing to an analyst. Often, the data have already been gathered so little work is required by the analyst. Also, the data have (theoretically) been purged of faulty information. However, historical data still require close scrutiny. For instance, the firms in an industry or the nature of the industry may have changed. The video rental industry is an example of an industry which experienced a "shakeout" of firms. During the 1980s there was a boom in the VCR market which generated many new entrants to the video rental industry. During this period, video rental stores and rental outlets (stores with video rentals as a sidelight, e.g., convenience stores) comprised the industry. In the 1990s the industry rapidly changed to an industry dominated by large chain rental stores, whereby the rental outlets and small rental stores disappeared. The computer industry during the 1995-96 market is a prime example of a changing industry. According to an article in Business Week, Apple Computer Inc. slashed Macintosh prices by 20 percent (Rebello, November 6, 1995). The price of the computer did not decrease because it was becoming outdated. To the contrary, this computer was technologically advanced. Apple�s price cut was a competitive move aimed at increasing their market share. Instead, the favor of consumers changed to the operating system of IBM and compatibles. In summary, the nature of the industry, particularly how it has changed over time, needs to be considered before using historical data. Adjustment of Historical Data for Inflation If historical data are used, the prices need to be adjusted for inflation. After an adjustment using an index such as the Producer Price Index (PPI) (annual index number or a year-to-date average), the prices reflect the same purchasing power of a dollar. The choice of an index depends on the good (it should reflect the trend of the good�s particular industry). The PPI is only one family of indices; there are many indices from which to choose. Since the PPI is published by the Bureau of Labor Statistics (BLS), past and current PPI values can be found in their periodic news releases and on their website (http://stats.bls.gov). Similarly, past and current values for other indices can be gathered from periodic news releases or reports.
The preceding sections have identified sources of data and issues to be considered when using data from each source. Perhaps the most important section is 6.3, which delineates considerations affecting the validity and reliability of data. This leads to the final step of the data gathering process: evaluating data and deciding which data are most reliable. Evaluating data is the process of deciding which data to use when available data reflects similar information. In essence, there is no single source of data that can be identified as a superior source because all data must be weighed in comparison to the quality of other available data. Therefore, data from a particular source may be used in conducting a certain price analysis but may be deemed inappropriate for another. The merits of data and its source depend on the data considerations mentioned in section 6.3. Accordingly, the criteria listed in section 6.3 should be used to determine which data are most appropriate and applicable. Often a combination of two or more data elements will be used. For example, assume an analyst has two prices for a computer processor: 1.) the price listed in the offeror�s catalog and 2.) the price listed in the competitor�s catalog. The offeror�s price is more expensive than the price for the same general product listed in the competitor�s catalog. The quantities associated with each published price are the same. Although the general products are the same-- both are 90 megahertz processors, the competitor�s product has been described as poor in quality by trade journals. The second source of information is important in that it may sway the analysis in favor of the higher price. Therefore, the best evaluation approach is a combination method, whereby data from all sources are considered at once. This enables the analyst to assess accuracy and relevancy, completeness, and currency by means of comparison.
Data used during price analysis should be accurate, detailed, and timely. Numerous resources provide data that can facilitate an analysis; however, the analyst should carefully review the data since any incorrect data may skew the analysis and lead to a faulty conclusion. It is the analyst�s responsibility to ensure that the information used is valid and that the application of the information is accurate.
6A. Industry Associations Table of Contents II. Architecture, Construction, and Engineering III. Chemical/Rubber and Plastics Industry IV. Computer Hardware, Software, and Services V. Electronic/Industrial Electrical Equipment VI. Fabricated/Primary Metals and Products VII. Manufacturing and Wholesaling: Misc. Consumer VIII. Manufacturing and Wholesaling: Misc. Industrial X. Utilities: Electricity/Gas and Sanitation
II. Architecture, Construction, and Engineering
III. Chemical/Rubber and Plastics Industry
IV. Computer Hardware, Software, and Services
V. Electronic/Industrial Electrical Equipment
VI. Fabricated/Primary Metals and Products
VII. Manufacturing and Wholesaling: Misc. Consumer
VIII. Manufacturing and Wholesaling: Misc. Industrial
X. Utilities: Electricity/Gas and Sanitation
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is associated with gathering and reviewing certified cost and pricing data. As a result, a hierarchical approach for requiring price data has been developed. When utilizing this approach, the analyst must determine whether adequate competition is present (this process is discussed in Chapter 5, "Price Analysis"). If adequate competition exists, the offeror need only provide minimal price data for a good or service and should not be asked to submit additional cost or price information.
Many contracting offices do not have uniform, automated databases of contracting cost and price information. Some offices maintain either manual or automated systems which may be indexed by commodity or service. Other offices may organize data by contract number or by contractor. These situations make data gathering and comparison very time-consuming. In these instances, experienced contracting officers or other personnel with detailed program knowledge are valuable resources.