Practitioner’s Guide for Procurement Pricing

Summary of Changes

In response to the feedback received from the procurement community since the release of Version 2022-1 of the Practitioner’s

Guide for Procurement Pricing (“Guide” or “Pricing Guide”), the following table provides details of the changes made in Version

2023-1, including additional updates made to align the Guide and the Supply Manual (PN-154, 155 & 156) for formalization

purposes.

Comments and Questions: Please provide any comments and questions to the Procurement Support Services Sector – Pricing

and Professional Accounting Practices Group. Email: TPSGC.padgamtp-appbipm.PWGSC@tpsgc-pwgsc.gc.ca

Change Summary Version 2023-1

Released: August, 2023

The following are key changes made to the Guide to address the feedback received since the release of Version 2022-1, as

well as administrative changes to align the Guide, the Supply Manual (Mainly Chapter 4 &10) and Standard Acquisition Clauses

and Conditions (SACC) Manual.

Summary of Changes

Guide Section

Pricing Approach

• Clarification - Incentives are used only when added value is created in the contract

Section 2.2

Engaging Expert Advice

• Updated the conditions triggering the mandatory use of a Price Support Directorate advisor

to align with Directive on the Use of Cost and Price Analysis Services

Section 3.2

Basis of Payment

• Added the link to Annex 2.4: Characteristics of Acquisitions Program Procurement

Complexity Levels of the Supply Manual

• Guidance on the consistent use of fixed price and firm price basis of payment

Section 4.1

Fixed Price

• Guidance on the consistent use of fixed price and firm price basis of payment

• Added reference to the general Audit clause section in the General Conditions (Section 3) of

the SACC Manual in the following clauses : 2010A, 2010B, 2010C, 2015A, 2029, 2030,

2035 and 2040

• Added reference to new clause C8000C with a fixed price basis of payment

Section 4.1.1

Fixed Time/Unit Rate

• Revised definition of fixed time/unit rate

• Add reference to new clause C8001C

• Clarified when to use fixed time/unit rate

• Clarified what kind of validation is required for non-competitive contracts

Section 4.1.2

Cost Reimbursable

• Removed the reference to the Incentive section

• Added reference to a new audit clause C1004C

Section 4.1.3

Basis of Payment Terminology Changes for French Version

• Updated terminology : Tarif fixe → Tarif forfaitaire

Throughout the Guide

Cost Reimbursable with No Fee

• Added reference to SACC Manual clause C0201C

Section 4.1.3.1

Cost Reimbursable with A Fixed Fee

• Revised the definition of cost reimbursable with a fixed fee

• Added reference to SACC Manual clause C0202C

Section 4.1.3.2

Cost Reimbursable with Target Cost/ Incentive Fee

• Clarified this basis of payment provides cost control incentives

• Added reference to SACC Manual clauses C8002C, C8003C, C8004C, and C8005C

• Clarified C6000C must be used for cost reimbursable with target cost/incentive fee with

maximum

Section 4.1.3.3

Cost Reimbursable with Fee Based on Actual Costs

• Revised definition of cost reimbursable with fee based on actual costs

• Added reference to SACC Manual clause C0205C

• Clarified actual costs incurred should be determined by SACC Manual 1031-2 and Costing

Standard

Section 4.1.3.4

Provisional Price Basis of Payment

• Added reference to SACC Manual clause C0300C

• Guidance on provisional price basis of payment validation based on stakeholders’ feedback

Section 4.1.4

Economic Price Adjustments (EPAs) and Foreign Currency Adjustments (FCAs)

• Revised the definition of EPAs and FCAs

• Clarified when to use EPAs and FCAs with reference to SACC Manual clauses

• Clarified EPA or FCA must be agreed upon during negotiation of the initial or base year

contract price

Section 4.2

Ceiling Price and Limitation of Expenditure

• Revised the definition of limitation of expenditure

Section 4.3

Incentives

• Clarified the timing to use incentives in competitive and non-competitive contracts

• Remove “cost reimbursable with target cost/ incentive fee” from the types of incentives

Section 4.4

Technical Performance Incentives

• Guidance on the technical performance incentive requirements to differentiate from those of

schedule performance incentives

• Added reference to new pricing incentives clauses C8006C

Section 4.4.1

Schedule Performance Incentives

• Clarified when to use schedule performance incentives

• Added reference to new pricing incentives clauses C8007C

Section 4.4.2

Award Fees

• Clarified when to use award fees

• Clarified award fees are earned by meeting predetermined criteria

• Added reference to new pricing incentives clauses C8008C

Section 4.4.3

Pricing Principles

• Updated the links to the Supply Manual for special circumstances that are exceptions from

using the Pricing Principles

Section 5.0

Commercial Pricing

• Added reference to the general Audit clause section in the General Conditions (Section 3)

of the SACC Manual in the following clauses : 2010A, 2010B, 2010C, 2015A, 2029, 2030,

2035 and 2040

Section 5.0.2

Principles for Establishing the Cost Base

• Added reference to the new audit clause C1004C

Section 5.1

Contract Cost Principles, SACC 1031-2

• Added examples of when to use SACC 1031-2 for determination of negotiate price or rate

Section 5.1.0

Profit Principles

• Clarified that the total allowable amount of profit must be the lower of calculated profit rate

and 16% of the total contract costs

Section 5.2

Return on Working Capital Employed

• Updated the clauses for the applicable rates used for the calculation of return on working

capital employed

Section 5.2.1.1

Return on Fixed Capital Employed

• Revised the explanation of the fixed rate of 1% in the return on fixed capital employed

formula

• Updated the clauses for the applicable rates used for the calculation of return on fixed

capital employed

Section 5.2.1.2

Negotiated Profit Element: General Business Risk

• Clarified government furnished materials and contract issue materials are not included in

direct materials

• Added overhead examples

• Revised the definition of pass through costs and examples

Section 5.2.2

Negotiated Profit Element: Contractual Risk

• Clarified the risk factor of the program maturity include the level of establishment of

products, services, processes and tasks

• Removed socio-economic benefits programs from contractual risk factors

Section 5.2.3

Alternative Pricing Strategies

• Clarified alternative approaches should pursue better value to Canada with revised

examples

Section 5.3

Firm Price

• Editorial revisions to consistent use of fixed price and firm price basis of payment

• Added reference to the general Audit clause section in the General Conditions (Section 3) of

the SACC Manual in the following clauses : 2010A, 2010B, 2010C, 2015A, 2029, 2030,

2035 and 2040

Annex 1

Costing Standard

• Added a new subsection – Strategic Innovation Fund Repayment

• Updated the subsection – Government Supplied Materials (GSM) to clarify GSM are not

included in direct materials. No profit is allowed on these materials.

Annex 2

Cost Management

• Updated the reference to general audit clause and Audit section in SACC Manual General

Conditions

• Added the new clause C1004C in the key audit and validation related clauses

Annex 2C

Contact Information

• Updated the name of the Pricing and Professional Accounting Practices Group

Annex 3

Discussion Paper - Liquidated Damages

• Added guidance to assess the reasonability of the rate of liquidated damages

Annex 5.2.3

Discussion Paper – Sales and Marketing

• Removed the ITB examples

Annex 5.3.1

Discussion Paper – Research and Development Costs

• Removed the ITB examples

Annex 5.3.6

Discussion Paper – Risk and Cost Considerations for Socio-Economic and Environmental

Benefits Policies and Program

• Under review - To clarify the costing approach in regards of different socio-economic and

environmental benefits policies and programs

Annex 5.3.7

Profit Determination Template

• Revised instructions to clarify the use of the template

• Added signature area for completion, amendment, and review of the template

• Added a “Decision Tree” tab for the selection of necessary tabs to complete profit

calculation of capital employed

• Set up macro functions in the “Total Profit” tab for return on capital employed calculation

• Clarified the contract profit rate must not exceed 16% of the total contract costs

Annex 6.1

Applicable Rates for Profit Determination Table

• Added the links to the sources of the applicable monthly rates for calculation of return on

capital employed

• Posted the calculated monthly rates on BuyandSell website for contracts starting September

2023 and onwards

Annex 6.2

Contractual Risk Assessment Tool

• Removed socio-economic benefits programs from the contractual risk factor in the tool

Annex 6.3

Glossary

• Added a new annex for definitions of the key terms used in the Guide

Annex 7

Annex: Summary of Changes for Previous Versions

The following table provides details of the changes in guidance introduced in each phase of the Guide. This change summary was

previously released January 20, 2022.

Phase 1

Released: February 8, 2019

Key changes introduced in Phase 1 include guidance on the consideration of pricing throughout the acquisition lifecycle and

recommendations from a contract management perspective on timing, documentation, and option analysis, such as pricing

strategically and aligning pricing to the procurement objectives.

Change Summary

Reference:

Fixed price basis of payment

• Introduction of a fixed price basis of payment to address concerns and challenges with the

current application of the firm price basis of payment and the discretionary audit clause.

• Section 4.1.1: Fixed Price

• Annex 1: Firm Price Basis

of Payment

Provisional price basis of payment

• New basis of payment introduced with parameters that allow for changes in pricing and

basis of payment within a contract based on knowledge and experience gained over time.

• Section 4.1.4: Provisional

Price Basis of Payment

Guidance on use of incentives

• Guidance and tools introduced on the use of incentives to increase understanding on when

incentives are beneficial and how they can be incorporated into the contract price.

• Section 4.4: Incentives

Costing Standard

• New costing guidance to complement Standard Acquisitions Clauses and Conditions

(SACC) Contract Cost Principles 1031-2 and provide criteria (Attributable, Appropriate and

Reasonable) to assess the acceptability of a cost.

• Annex 2: Costing

Standard

Costing Standard: Taxes

• Proposed changes to the treatment of tax refunds/credits/Investment Tax Credits with

consideration for the application of credits to related contract costs.

• Annex 2: Costing

Standard,

Subsection 4.17: Taxes

Phase 2

Released: December 12, 2019

Key changes introduced in Phase 2 include further process guidance on Section 4 of the Guide as it relates to Basis of Payment

and Incentives, as well as new discussion papers on complex costing areas.

Change Summary

Reference:

New Discussion Papers that provide information on the potential impact of complex costing

areas on overall contract costs and price and provide direction and techniques on assessing

acceptability of the costs.

Discussion Paper: Asset Valuation

Discussion Paper: Transfer Pricing

Discussion Paper: Production Capacity and Indirect Costs Allocation

Discussion Paper: Research and Development

• Annex 5.3.3

• Annex 5.3.4

• Annex 5.3.5

• Annex 5.3.6

Phase 3

Released: December 2020

Phase 3 provides new guidance and tools for the determination of a contract price when market prices are not available and

negotiated pricing is required. This includes clarity on how cost-based pricing works, and guidance to enhance consistency in the

application of pricing and profit principles to support the delivery of best value in negotiated contract prices.

Change Summary

Reference:

Contractual Risk Factor

• New guidance related to the assessment of contractual risk for a contract and impacts the

resulting contractual risk profit rate.

• Clarification on the Industrial Technological Benefits (ITBs) policy considerations that can

impact the contractual risk of a procurement.

• Introduces new Contractual Risk Assessment Tool

• Section 5.2.3: Negotiated

Profit Element:

Contractual Risk

• Annex 6.3: Contractual

Risk Assessment Tool

Profit Determination Template

• New template that provides instructions and schedules to support and document the

determination of contract profit in accordance with the Section 5.2 (Profit Principles).

• Annex 6.1: Profit

Determination Template

Profit Threshold

• Overall profit threshold for negotiated cost-based pricing revised to 16% to better represent

the current financial environment and maximum risk scenarios.

• Section 5.2: Profit

Principles

Return on Capital Employed

• Revisions to the determination of return on Capital Employed to address concerns related

to the complexity of the determination process and relevancy of factors used within the

calculations. Including the following:

o Modified financial rates representative market conditions, averaged to reduce the

impact of significant market fluctuations;

o Revised dollar value thresholds for applicability of simplified capital employed

calculations from under $250,000 to under $1 million; and

o New simplified tier in fixed capital employed for contracts greater than $1 million and

lower than $20 million with lower capital intensity requirements.

• Section 5.2.1: Negotiated

Profit Element: Capital

Employed

Alternative Pricing Principles

• Enhanced guidance to ensure principles and processes are clear for situations where

alternatives to cost-based pricing may generate better value.

• Section 5.3: Alternative

Pricing Principles

Discussion Paper: Baseline Profit Methodology

• Introduction of the baseline profit methodology for consideration and comments. This

methodology relies on average industry profit and earnings data to establish a base for the

development of profit in a contract.

• Annex 5.4.2

Discussion Paper: Industrial and Technological Benefits - Value Proposition Cost

Considerations

• Discussion Paper that provides direction related to cost considerations of Value

Propositions.

• Annex 5.3.7

Version 2022-1 Released: January 20, 2022

Version 2022-1 provides changes made to the Guide to address the feedback received from stakeholder consultations, as well as

administrative changes to align the Guide and the Supply Manual (mainly Chapter 10 - Cost and Profit).

Change Summary

Reference:

Basis of Payment Terminology Changes for French Version

• Updates to the French basis of payment terminology to align with the terminology proposed

in the updated Basis of Payment and Incentive SACC clauses. Guidance and intent of the

SACC clauses remains the same. Terminology impacted are as follows:

o Fixed Price (“Prix fixe” to “Prix forfaitaire”)

o Fixed Time/Unit Rate (“Taux horaire/unitaire fixe” to “Taux horaire/unitaire

forfaitaire”)

• Throughout the Guide

Fixed Price Basis of Payment

• Additional context on audit related clauses provided based on stakeholder feedback.

• Section 4.1.1

Pricing Principles

• Section 5.0

• Based on stakeholder feedback, clarified the pricing principles section. Revised guidance

includes:

o New figure to aid in the determination of the applicability of Pricing Principles;

o Commercial Pricing and link to new Section 5.0.2; and

o Addition of links to the relevant Supply Manual sections for special circumstances

that are exceptions to the Pricing Principles.

Commercial Pricing

• New section to provide detailed guidance on commercial pricing based on stakeholder

feedback.

• Section 5.0.2

Contract Cost Principles, Standard Acquisition Clauses and Conditions (SACC) 1031-2

• New section to provide detailed guidance on Contract Cost Principles SACC 1031-2, to

address feedback from stakeholder consultation.

• Section 5.1.0

Profit Principles

• The “Exceptions to Profit Principles in Negotiated Contracts” for Canadian Commercial

Corporation (CCC) contracts removed, as all contracts with the CCC must be placed in

accordance with the procurement practices, policies, and procedures of the Government of

Canada.

• Section 5.2

Negotiated Profit Element: Contractual Risk

• Expansion of the Industrial and Technological Benefits (ITB) Policy Consideration sub-

factor in Contractual Risk to broader Socio-Economic Benefits Programs and Policy

Considerations. Key areas impacted:

o Table 5.2.3.b: Explanation of Contractual Risk Factors

o Table 5.2.3.c: Key Questions to Ask in the Assessment of Contractual Risk

• Other socio-economic benefits programs and policies for consideration in this section

will be under consultation in subsequent iterations of the Guide.

• Section 5.2.3

Firm Price Basis of Payment

• Additional clarifications on the use of discretionary audit clauses for commercial goods

and/or services provided based on stakeholder feedback.

• Annex 1

Costing Standard

• Updates made to the Costing Standard include:

o Re-organization of section and inclusion of a table of contents to make the Section

more user friendly;

o Introductory text added to provide more direction and context on use of this Annex;

o Revisions to existing Costing Standard sub-sections as well as the addition of new

sub-sections for alignment to the Supply Manual; and

o Additional guidance on costing that enhances and replaces guidance found in the

corresponding Supply Manual sections:

▪ Annex 2A: Costing Process,

▪ Annex 2B: Contract Costing Rates, and

▪ Annex 2C: Cost Management.

• Annex 2

Discussion Papers

• Based on stakeholder feedback, the order and numbering of Annex 5: Discussion Papers

has been modified to group Annexes according to the topic.

o Annex 5.1 Background: Contract Pricing in Canada

o Annex 5.2 Performance Management Discussion Papers

o Annex 5.3 Costing Discussion Papers

o Annex 5.4 Pricing Discussion Papers

• Annex 5

Discussion Paper – Liquidated Damages

• New Annex to provide guidance on Liquidated Damages based on stakeholder feedback.

• Annex 5.2.3

Costing Discussion Papers

• Modifications to various Costing Discussion Papers to align to the proposed Supply Manual

update. Impacted Discussion Papers include:

o Annex 5.3.2 Discussion Paper – Executive Compensation and Bonus

o Annex 5.3.4 Discussion Paper – Transfer Pricing

• Annex 5.3

Discussion Paper – Asset Valuation

• An additional example provided in the recommendations section to provide clarity on the

use of different asset valuation methods, based stakeholder feedback.

• Annex 5.3.3

Discussion Paper – Transfer Pricing

• Addition of a link to the new Costing Standard sub-section 4.19 for Transfer Pricing to align

to the proposed Supply Manual update.

• Additional context provided on the use of the Organization for Economic Co-operation and

Development (OECD) Transfer Pricing Guidelines to address stakeholder feedback.

• Annex 5.3.4

Discussion Paper – Research and Development Costs

• Revisions to the Discussion Paper to align to the proposed Supply Manual update.

o Appendix B – Treatment of General Research & Development (R&D) vs. Specific

Product Development and/or Improvement Costs

• Note added regarding Investment Tax Credits. The topic will be under consultation in

subsequent iterations of the Guide.

o Appendix A – Factors to consider before accepting R&D Costs

• Annex 5.3.6

Discussion Paper – Industrial and Technological Benefits – Value Proposition Cost

Considerations

• Editorial revisions to this Discussion Paper based on stakeholder feedback.

• Annex 5.3.7