Market Based Pricing

Market based pricing is a pricing method used in Government of Canada procurement. The price of goods or services is assessed and established through the market when sufficient competition exists to obtain more than one competitive bid and compare prices. The Government of Canada also describes the method as determining a fair and reasonable price through competition.

In practice, the bids a buyer receives do the pricing work. When several suppliers compete on the same requirement, the buyer compares their prices and uses that comparison to decide whether the price is fair and reasonable. The CanadaBuys Supply Manual glossary carries the definition, and the Practitioner's Guide for Procurement Pricing uses the capitalized form Market Based Pricing.

How the Government of Canada defines the method

The CanadaBuys Supply Manual glossary defines market based pricing as a price assessed and established based on the market, where sufficient competition exists to obtain more than one competitive bid and compare prices. The Practitioner's Guide for Procurement Pricing places it among the methods for determining the price of a contract or a contract component. The other methods named there are commercial pricing and pricing principles.

The condition that matters is sufficient competition. The method is available when a solicitation produces more than one competitive bid and those bids can be compared. Without that, the buyer turns to another method.

Market, commercial and negotiated pricing

CanadaBuys guidance on cost and profit negotiations sets out three approaches and states that market pricing is preferred.

• Market pricing: prices established by the market through competition.
• Commercial pricing: prices available to the general public, or to entities for non-government purposes, used when competition for the procurement is absent.
• Negotiated pricing: used when neither market pricing nor commercial pricing is possible. Cost-based pricing is the most common form.

The order reflects a hierarchy. Competition is the first choice, published or commercial prices come next, and negotiation based on costs is the fallback.

Market price and the U.S. DFARS comparison

The CanadaBuys glossary also defines the related term market price. It is the price at which a willing seller and a willing buyer transact in the ordinary course of trade, including the actual current or recent open-market selling price of a commodity.

The U.S. Defense Federal Acquisition Regulation Supplement, at DFARS part 215.4, uses the term market prices. It defines them as current prices established in ordinary trade between buyers and sellers free to bargain, substantiated through competition or sources independent of the offeror. It names market-price-based pricing as the preferred way to establish a fair and reasonable price when adequate solicitation price competition is absent. Suppliers working across the border should know that this is a U.S. formulation and not Canadian policy.

Defence contracts and cost-plus-profit pricing

Public Services and Procurement Canada states in its defence procurement guidance on cost principles that Canada seeks to determine prices through market competition. Cost-plus-profit approaches may be used when a contract is non-competitive, or when negotiations or amendments are needed after a competitive process. This framework is especially relevant to defence contracts, so a supplier in that sector can face both pricing approaches, sometimes on the same program.

What it means for a supplier bidding on Canadian public contracts

Where a solicitation is competitively priced, your bid is the evidence the buyer uses. Submit a bid that can be compared directly with others, and provide the pricing information the solicitation requires so the buyer can assess whether the price is fair and reasonable.

• If competition is insufficient, expect the buyer to use commercial pricing or to negotiate.
• In defence and other non-competitive situations, be ready for pricing based on costs and profit under the applicable Government of Canada framework.
• Read each solicitation closely. The evidence required is specific to the solicitation and the contract.