Commercial Pricing

Commercial pricing is the price of goods or services sold to the general public or to entities for non-government purposes. It is the price set in ordinary trade between buyers and sellers, free of bargain, and it includes the contractor's costs and profit. The Government of Canada uses it as a way to establish a fair price when a purchase has no competition behind it.

The term appears in the CanadaBuys Supply Manual glossary and in the Public Services and Procurement Canada (PSPC) Practitioner's Guide for Procurement Pricing. A commercial price is credible only when a real market stands behind it, so the term carries specific conditions that a supplier has to be able to demonstrate.

The three conditions behind a commercial price

In Canadian federal procurement, a price qualifies as commercial pricing when the goods or services meet three tests set out in the Supply Manual:

• The contractor sells them to non-government customers in the course of normal business.
• They are sold in sufficient quantities to constitute a real commercial market.
• Enough non-government buyers exist to establish a going price.

The Government of Canada's procurement pricing guide adds that commercial pricing applies where goods or services are customarily used and sold to the general public or other non-government entities, which makes a supportable market price available. A price that only a government customer has ever paid does not meet this standard.

Where commercial pricing sits among Canada's pricing methods

Canada uses several methods to establish a fair price, and commercial pricing is one of them. Market pricing is preferred when competition sets the price. Commercial pricing may be used when competition is absent but the goods or services have an established non-government market. Negotiated pricing, often cost-based, is used when neither competitive nor commercial pricing can establish a supportable price. The CanadaBuys guidance on cost and profit negotiations identifies commercial pricing as an option when competition does not exist.

In practice, PSPC treats commercial pricing as a secondary method. It comes into play when a competitive process is not available and the supplier can show an existing non-government market price.

Price support the buyer will look for

For non-competitive procurements of commercial goods or services, Canada requires the buyer to negotiate a fair price using support such as:

• recent prices paid;
• current published price lists or catalogues; and
• prices paid by other governments, Crown corporations, hospitals, universities, or large private-sector organizations.

The CanadaBuys page on special cost considerations states that the buyer must obtain and validate sufficient price support before accepting a commercial price. The burden of producing that support falls in practice on the supplier.

Commercial pricing and defence procurement

Canada's pricing framework applies across federal purchasing, and the contract cost-principles and profit-policy framework is particularly relied on in defence procurement, as described in the PSPC summary of the review of cost principles. In that setting, prices may be established from actual costs plus a fair and reasonable profit rather than from market competition.

Commercial pricing is relevant where a defence requirement concerns commercially available goods or services and a reliable external market price can be demonstrated. Where neither commercial nor competitive pricing is available, cost-based approaches remain the fallback.

What commercial pricing means for a supplier bidding on Canadian public contracts

If you propose commercial pricing, be ready to prove that your price is a genuine market price. The federal pricing guide points to evidence such as published catalogues, standard or published price lists, recent sales information, and comparisons with prices offered to other customers.

• Show that the product or service is sold to non-government buyers.
• Show that enough transactions or buyers exist to establish a meaningful market price.
• Keep price lists and sales records current so the buyer can validate them.

A supplier who can document these points gives the contracting authority what it needs to accept the price. A supplier who cannot may be pushed toward cost-based negotiation, where costs and profit are examined line by line.