Price Substantiation

Price substantiation is the provision of evidence showing that a proposed or agreed price is fair, reasonable, and properly based on market or cost information. A buyer asks for it to confirm that the price it is about to pay can be defended, whether the evidence is a set of invoices, a sales list, or a breakdown of costs.

In Canadian federal procurement, the same function is usually called price support. In NATO contracting, the wording is that a contractor must provide cost information accompanied by appropriate substantiation when the purchaser asks for it. Both describe a supplier backing up its price with documents rather than asking the buyer to take the figure on trust.

How NATO contract terms use the wording

NATO contract terms require the contractor to provide cost information accompanied by appropriate substantiation when the purchaser requests it under the purchaser's pricing principles. The NCIA general terms and conditions set this out in contract language, so it is an obligation that follows the supplier into performance and not only a bid-stage exercise. The NCIA Contract General Terms and Conditions are the reference for suppliers dealing with that agency.

Price support in Government of Canada procurement

Federal guidance treats price support as evidence that contracting officers use to assess market pricing and negotiated pricing. The PSPC Practitioner's Guide for Procurement Pricing covers both methods, and the full guide on CanadaBuys includes direction on obtaining price support through comparable invoices. Under the Supply Manual annexes, the contracting officer is responsible for negotiating a fair and reasonable price and for ensuring that prices are fair and reasonable to Canada.

What evidence a supplier may be asked for

The evidence depends on the solicitation, the purchaser, the pricing method, and the contract terms. Typical items include:

• Comparable invoices or contracts for the same or similar goods or services
• Sales lists and records of discounts
• Cost information, with supporting records
• Sales information from the previous one to three years, which the federal pricing guide describes as something a supplier may be asked to provide

A Procurement Ombudsman review of Canada School of Public Service contracting describes price-support information as copies of invoices or contracts for the same or similar services. They are used to substantiate that federal government prices are the same as or lower than prices charged to other clients. The full text is in the Office of the Procurement Ombudsman review.

Sole-source and single-bid contracts

Price support carries the most weight when there is no competition to test the price. The same review states that Treasury Board and CSPS contracting policies require price support on file for sole-source contracts and for contracts that receive only one bid, so the price can be assessed against the market. Federal sole-source guidance also asks officials to explain why the price is fair and reasonable, describe how price support was obtained, and summarize the negotiations. In those files, the supplier's documents often form the basis of the buyer's justification.

What it means for a supplier bidding on Canadian public contracts

Keep records that can show your price against the market: invoices to other customers for similar work, current price lists, and cost build-ups. When a contracting officer asks for price support, a prompt and organized response keeps negotiations moving. Expect requests to be most likely when you are the only bidder or are being considered for a sole-source award. Read each solicitation and contract for its own pricing clauses, since the evidence required is set by those terms and not by a single standard form.