Procurement Information Circular

April 17, 2006



PURPOSE:  To provide guidance on the appropriate use of parametric cost estimating as a technique when performing price analysis. 


BACKGROUND:  Parametric cost estimating is a form of price analysis which utilizes cost estimating relationships and associated mathematical relationships (algorithms or logic) to establish cost estimates. The technique is used to measure and/or estimate the cost associated with the development, manufacture, or modification of a specified end item.  The measurement is based upon the technical, physical, or other end item characteristics.  Cost estimating relationships (CERs) are used to develop parametric estimates (e.g., rough yardstick estimates, dollars per pound or dollars per horsepower).


GUIDANCE:  The Government may use various price analysis techniques and procedures to ensure a fair and reasonable price.  Price analysis is the process of examining and evaluating a proposed price to determine if it is fair and reasonable, without evaluating its separate cost elements and proposed profit.  Price analysis is used when an offeror is not required to provide cost or pricing data.  Therefore:

   1.  When available, the price analysis techniques outlined in FAR 15.404-1(b)(2)(i) and (ii) are the preferred methods.

   2.  When these techniques are determined not available, appropriate, or considered suitable for the acquisition, contracting officers may use the parametric cost estimating technique identified at FAR 15.404-1(b)(2)(iii) when performing price analysis.

   3.  The Parametric Cost Estimating Handbook is available at:


The Handbook includes comprehensive and practical information concerning data collection, cost estimating relationship development, parametric cost models, and statistical techniques. 


EFFECTIVE DATE:  This PIC is effective as dated and shall remain in effect until canceled or superseded. 


HEADQUARTERS CONTACTS:  For contract issues, Marilyn J. Seppi, Contract Management Division, (202) 358-0447, email:  For cost estimating issues, Joseph W. Hamaker, 202-358-2495, email:



Tom O’Toole for

Lou Becker

Acting Contract Management Division                                                  



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