Price Analysis vs Cost Analysis: What 2 CFR 200.324 Asks For

When a monitor asks how you knew the price was reasonable

A finance manager at a grant-funded nonprofit is preparing for a monitoring visit. The monitor opens the file for a recent professional-services contract and asks a simple question: how did you decide this price was reasonable? The file holds three proposals, a signed award memo and a scoring summary. It does not hold a note explaining what the price was compared against.

That gap is common, and it is easy to see why. Teams know that a federal award asks for some kind of price check. They are less sure which kind, when it applies, and what a written record of it should contain. The two terms also get used interchangeably, which makes the confusion worse.

This article explains how price analysis and cost analysis differ, when 2 CFR 200.324 calls for them, and what a reasonableness note should record. By the end you should be able to write a short, dated note that shows what you compared and why.

Price analysis vs cost analysis: the core difference

The two methods answer different questions, so the starting point is the difference between them. 2 CFR 200.324 uses both terms without defining them. The descriptions below follow the definitions in the Federal Acquisition Regulation (48 CFR 15.404-1), which governs federal agencies' own purchases but is a useful plain reference.

Price analysis evaluates the price itself. You compare the offered price with other prices: competing offers, the independent estimate, published or catalog prices, or the organization's own history of buying the same thing. The question is whether this number is reasonable when set beside other numbers. You do not need to see how the vendor built it.

Cost analysis looks behind the price. You examine the elements that make it up, such as labor, materials, overhead and profit, and judge whether each is reasonable. The question is whether the vendor's build-up is sound. It needs data the vendor provides, so it is the heavier of the two methods.

In practice, competitive proposals with several comparable offers usually give you the material for a price analysis. Cost analysis tends to matter where comparison is thin: a single offer, a unique service, or a price that cannot be tested against anything similar. Which method fits is a judgment your written procedures should help you make, and your awarding agency or pass-through entity can tell you what it expects.

What 2 CFR 200.324 asks for

The requirement sits in 2 CFR 200.324(a): "The recipient or subrecipient must perform a cost or price analysis for every procurement transaction, including contract modifications, in excess of the simplified acquisition threshold." The same paragraph adds that "as a starting point, the recipient or subrecipient must make independent estimates before receiving bids or proposals."

Two details are worth noting. First, the section says "cost or price analysis," and it states that "the method and degree of analysis conducted depend on the facts surrounding the particular procurement transaction." The method is chosen to fit the procurement rather than prescribed in every case. Second, contract modifications are included, so a change order that raises the price above the threshold does not escape the requirement simply because the original award was competed.

The independent estimate is a separate step. The regulation does not say who must prepare it. What matters for the file is that it was made before any bid or proposal was received and that its basis is written down. Our companion piece on the independent cost estimate under 2 CFR 200.324 covers how to build one.

The quotations above are from the current eCFR text, which reflects the revision of the Uniform Guidance effective October 1, 2024. eCFR describes itself as authoritative but unofficial; the official edition is the annual CFR on govinfo.gov. If your award is governed by an earlier version, check that text too.

Where the threshold sits, and what happens below it

The trigger is the simplified acquisition threshold. The FAR Council raised it from $250,000 to $350,000 effective October 1, 2025 (FAR Case 2024-001, 90 FR 41872). The same rule raised the micro-purchase threshold from $10,000 to $15,000.

Three cautions apply:

• An entity sets its own simplified acquisition threshold, and under 2 CFR 200.320 that figure may be lower than, but must not exceed, the FAR threshold. If your written policy sets a lower figure, check whether it changes where your analysis duty begins.
• State or local rules may be stricter than the federal ones. When both apply, follow the stricter rule.
• Confirm with your awarding agency or pass-through entity how a threshold change applies to your specific award, since awards made before and after October 1, 2025 can differ.

Below the threshold you are not exempt from judging price. Under 2 CFR 200.320(a)(1)(ii), micro-purchases may be awarded without soliciting competitive price or rate quotations if the entity considers the price reasonable, based on research, experience, purchase history or other information, and maintains documents to support that conclusion. The practical point is the same at every dollar level: a short written basis for price belongs in the file. The simplified acquisition threshold explainer covers the dated values in more detail.

Choosing a method and writing the reasonableness note

Here is a working sequence that fits most small-agency files. It is a documentation habit, not a legal test, so adapt it to your written procedures.

Step 1: Fix the estimate before offers arrive

Where the procurement is above the threshold, prepare the independent estimate and date it before any bid or proposal is received. A dated estimate shows it was not shaped by the offers.

Step 2: Tabulate what you received

Put the offers side by side on the same basis. Keep alternates and options out of the evaluated price unless the solicitation said otherwise. A clean tabulation is the raw material for any comparison; see the bid tabulation guide for layout.

Step 3: Run the price comparison

Compare each offer with the independent estimate and with the other offers. Note any offer that sits far from the rest, high or low, and what might explain it.

Step 4: Decide whether more is needed

If the offers are few, the scope is unusual or one price looks hard to explain, consider a cost analysis. That means asking the offeror for the elements of its price and reviewing them. Record why you did or did not take that step.

Step 5: Write the note

A reasonableness note is short. It should record:

1. what was procured and the date of the analysis;
2. the method used, price analysis, cost analysis or both;
3. the independent estimate and the date it was prepared;
4. the prices compared and their sources;
5. the conclusion on reasonableness, with the reasoning in a sentence or two;
6. who prepared it.

This lines up with what 2 CFR 200.318(i) asks the file to show. That section requires records detailed enough to show the history of each procurement, including the rationale for the procurement method, the contract type selection, contractor selection or rejection, and the basis for the contract price. The note is where the last of those four elements lives.

A worked example

This is a worked example with round inputs, not a real procurement. Suppose the independent estimate, dated before the solicitation closed, is $100,000. Three offers arrive at $80,000, $100,000 and $125,000.

The middle offer matches the estimate. The $125,000 offer is 25 percent above it, and the $80,000 offer is 20 percent below it. A price comparison alone shows the spread. It does not say whether the low offer reflects a lean approach or a misunderstanding of scope.

The note should say so plainly. For the low offer, you might record that you confirmed scope with the offeror before ranking. For the high offer, you might record that its price was not selected and why. If a price analysis could not resolve the question, that is where a cost analysis step would come in.

Why the record matters later

Procurement is a frequent source of audit trouble, which is one reason the note is worth writing at the time. In a 2023 article, the Washington State Auditor's Office reported that federal procurement is the most common single audit finding it reports, about 26 percent of them. That figure reflects one state's audits and should not be read as a national rate.

The cost of getting it wrong can also be large. Over the six-year period ended September 30, 2014, DHS OIG audits questioned $352.3 million in FEMA Public Assistance grant costs because subgrantees, local governments and nonprofits, did not follow federal procurement rules (OIG-16-126-D, September 2016). FEMA later allowed most of those costs, which the OIG criticized, so the figure shows how often the rules were missed rather than how much was repaid. It covers that program and period only. Where noncompliance cannot be fixed by specific conditions, remedies under 2 CFR 200.339 include temporarily withholding payments, disallowing costs, and suspending or terminating an award in part or in its entirety.

Our overview of procurement findings in single audits looks at how these issues surface. Retention matters too: 2 CFR 200.334 generally calls for keeping records for three years from the final financial report, unless an exception applies, and local public-records rules may require longer.

A practical way to put this into your files

Pick one open or recent procurement and test your file against the six-item note above. If any item is missing, add a dated memo to the file that reconstructs it honestly, labeled as written later rather than backdated. Then add the note as a standing step in your written procedures, so the next file starts with it.

A spreadsheet can carry this work, and many teams use one. The limit is structural: each file is rebuilt, and nothing records which rule applied at the time. RFPManagement is designed to include a cost or price analysis worksheet and price normalization alongside the bid tabulation, and to keep a dated, append-only record. Bids are entered by paste or CSV after they are received elsewhere. For a spreadsheet you can use in the meantime, the Bid Tabulation and Price Analysis Workbook is designed to compute normalized prices and record the comparison. It is available in the store now. To hear when the evaluation workspace opens, join the waitlist, and see pricing for plan details.

RFPManagement records and computes. It does not give legal or procurement advice. The award decision stays with your organization.