4115-7-13 Fair market pricing for services priced as products.

(A) Purpose

This rule prescribes the policy, guidelines, and procedures to be used in verifying the fair market price for services priced as products including, but not limited to, data processing (keystroke entry), microfilming, and mailing/collating services.

(B) General provisions

(1) Bid comparison shall be the preferred method to verify the fair market price for the services priced as products outlined in this rule.

(2) Cost analysis may be used to verify the fair market price for the services priced as products outlined in this rule if it is established that insufficient bid comparison data is available.

(3) Same-as comparison may be used to verify fair market price for the services priced as products outlined in this rule if specification comparison can support and establish that an exact match exists between the service being used as the benchmark and the service priced as a product being considered for addition to the procurement list by the state use committee of Ohio (hereinafter referred to as the "committee"). The weight of specification comparison is also required if survey or index numbers are utilized from a professional or trade organization.

(4) The central nonprofit agency (hereinafter referred to as the "CNA") or the qualified nonprofit agency may file an exception to any policy or guideline contained in this rule on a case-by-case basis utilizing the procedure outlined in rule 4115-7-15 of the Administrative Code.

(C) Base service

(1) The committee shall only consider fair market pricing on those additions where cost elements represent usual and customary charges for the industry. These cost elements must exclude any rehabilitation related costs.

(2) It is the intent of the committee to assure that services priced as products covered by this rule and on the procurement list are exclusively comprised of the following cost elements:

(a) Direct labor,

(b) Indirect labor,

(c) Payroll taxes,

(d) Holiday/vacation/sick leave benefits,

(e) Overhead/burden,

(f) Equipment,

(g) Equipment maintenance,

(h) Materials/supplies, and

(i) Freight.

(3) Any requests to exceed the guidelines put forth in this paragraph would have to be considered by the committee on an exception basis as prescribed by rule 4115-7-15 of the Administrative Code.

(D) Fair market price verified by bid comparison

(1) If the service priced as a product is currently being purchased competitively, the initial fair market price recommended to the committee by the CNA or qualified nonprofit agency shall be the average of those bids from responsive and responsible bidders from the most recent procurement, adjusted for discounts received, which are not more than twenty-five per cent above or below the award price.

(2) If it is found that the most recent award price was made to the lowest bidder, then the price recommended to the committee by the CNA or qualified nonprofit agency shall be the average of the bids from the most recent procurement received from responsive and responsible bidders, adjusted for discounts contained in a range no more than thirty-five per cent above the award price.

(3) If bid comparison data is deemed insufficient, the CNA may allow the ordering office to advertise and solicit bids from the private sector. The ordering office may make an award for a period not to exceed one year to the lowest, responsive and responsible bidder. At the conclusion of the award period, the CNA shall, utilizing the bids obtained from the ordering office if they are sufficient, recommend a fair market price to the committee.

(4) If the bid information is over one year old, the fair market price submitted may include the committee-approved, not-to exceed inflation percentage for the appropriate year(s) for a maximum of two years factored in to compensate for bid aging.

(5) The CNA shall submit the following documentation to the committee with the recommended fair market price:

(a) Bidders' list with amounts,

(b) Previous contract award price,

(c) Statement of work, and

(d) Qualified nonprofit agency prevailing wage survey.

(E) Fair market price verified by cost analysis

(1) If the service priced as a product has not recently been purchased competitively, an initial three year price shall be verified by the evaluation and analysis of the costs assigned to each of the elements comprising the total fair market price submission. The three year price shall be comprised of a base year price with a not-to-exceed percentage of increase or decrease for each of the two follow along years. Each follow along year is optional with the agreement of the qualified nonprofit agency and ordering office.

(2) Using the forms, format, and procedures as prescribed by the committee, the CNA or qualified nonprofit agency shall supply cost breakdown information on each element, taking into consideration the following:

(a) Direct labor wages

Direct labor wages shall be determined by the qualified nonprofit agency through the use of a community prevailing wage survey as described by the federal department of labor in the "Fair Labor Standards Act." A copy of the prevailing wage survey shall be presented to the committee.

(b) Indirect labor

(i) For the purposes of this rule, indirect labor wages shall be applicable to supervisory positions, quality control and inspection, material handling maintenance, janitorial, shipping and receiving, and all other positions contributing indirectly to production which do not add value and which are not recovered in burden or overhead. The qualified nonprofit agency shall document all indirect labor positions using the forms, format, and procedures prescribed by the committee.

(ii) For the purposes of this rule, indirect labor hours shall be limited to fifteen per cent of the total direct labor hours, excluding direct labor rework hours.

(iii) The wages for supervisors shall be no greater than fifty per cent above the direct labor rate. The wages for all other indirect labor positions shall normally be halfway between the average direct labor wage and the wages paid to supervisors.

(iv) Any requests to exceed the guidelines put forth in this paragraph shall be considered by the committee on an exception basis as prescribed by Rule 4115-7-15 of the Administrative Code.

(c) Payroll taxes

(i) Allowable taxes are those customary to the private sector, unless stipulated in Chapter 3309. Of the Revised Code, which would be paid to the direct and indirect positions. The maximum allowance is twelve per cent of the hourly wage rate for both direct and indirect positions.

(ii) Any requests to exceed the guidelines put forth in this paragraph shall be considered by the committee on an exception basis as prescribed by rule 4115-7-15 of the Administrative Code.

(d) Holiday/Vacation/Sick leave benefits

(i) Allowable leave shall be established at one hundred twenty hours for each full-time equivalent position of two thousand eighty hours per year, as required for direct and indirect labor. Leave shall be prorated to cover positions that are not full-time.

(ii) Any requests to exceed the guidelines put forth in this paragraph shall be considered by the committee on an exception basis as prescribed by rule 4115-7-15 of the Administrative Code.

(e) Overhead/burden

(i) The qualified nonprofit agency shall recover up to fifteen per cent of the total of the material, direct and indirect labor including taxes and holiday/vacation/sick leave benefits, equipment depreciation, equipment maintenance, and subcontract costs for overhead expenses associated with business-related contract administration, covering such cost elements as follows:

(a) Office supplies,

(b) Janitorial supplies,

(c) Cost of money on equipment,

(d) Rent or mortgage,

(e) Utilities,

(f) Building repairs,

(g) Insurance, and

(h) Administrative salaries, taxes, and fringe benefits.

(ii) Any requests to exceed the guidelines put forth in this paragraph shall be considered by the committee on an exception basis as prescribed by rule 4115-7-15 of the Administrative Code.

(f) Materials and supplies

(i) All Material and supplies applicable to production and utilized in the calculation of the fair market price proposal shall be itemized using the forms, format, and procedures prescribed by the committee. Prices for materials and supplies shall be determined by one of the following methods:

(a) State of Ohio general distribution contract,

(b) State term schedule, or

(c) Competitive quotation.

(ii) The qualified nonprofit agency and CNA shall provide three responsive and responsible competitive discounted quotations to the committee, or present, as part of the recommended fair market price, material and supply prices predicated upon the applicable state of Ohio general distribution contract or state term schedule for any single category expendable supply with an annual usage projected to be in excess of one thousand dollars. If three competitive quotations are used, the price submitted as part of the recommended fair market price shall be predicated upon the lowest responsive and responsible discounted quotation received.

(iii) If the material or supply is specified as a sole-source item by the purchasing authority, or is by nature sole-sourced, it can be explained as an exception.

(iv) Any requests to exceed the guidelines put forth in this paragraph shall be considered by the committee on an exception basis as prescribed by rule 4115-7-15 of the Administrative Code.

(g) Freight

The cost of freight calculated into the fair market price mix shall be presented by the qualified nonprofit agency or CNA to the committee using the forms, format, and procedures prescribed by the committee.

(h) Equipment allowance

(i) Equipment shall be depreciated and the cost included for the fair market price calculation using the forms, format, useful life tables, and procedures prescribed by the committee. Only equipment and equipment maintenance agreements utilized in production of the service shall be allowed as part of the fair market price calculation.

(ii) Total allowable equipment cost, including the cost of equipment maintenance agreements, and maintenance allowances shall be less than twenty-five per cent of the total contract.

(iii) If the qualified nonprofit agency and CNA propose a fair market price to the committee predicated on one hundred per cent consumption of the service life of a piece of equipment, acquisition shall occur as follows:

(a) The acquisition price of equipment in excess of one thousand dollars per individual item and one thousand five hundred dollars per series of like items shall be determined by one of the following methods:

(ii) Establishing the price through the state of Ohio general distribution contract,

(ii) State term schedule, or

(iii) Competitive quotation.

(b) Competitive quotation shall require the solicitation of three responsive, responsible discounted quotations, except as noted in paragraph (e) (2) (h) (iii) (C) of this rule.

(c) The allowable equipment price calculated into the proposed fair market price shall be at the price represented by the lowest, responsive, and responsible competitive discounted quotation or as represented on the general distribution contract or state term schedule.

Common business practices shall be used for the acquisition of equipment priced under one thousand dollars per individual item and one thousand five hundred dollars per series of like items.

(iv) If the equipment is specified as a sole-source item by the ordering office, or is by nature sole-sourced, it can be explained as an exception.

(v) Any requests to exceed the guidelines put forth in this paragraph shall be considered by the committee on an exception basis as prescribed by rule 4115-7-15 of the Administrative Code.

(i) Equipment Disposal

(i) All equipment with an acquisition cost in excess of one thousand dollars or one thousand five hundred dollars per series of like items which has been fully depreciated against and has fully recovered one hundred per cent of the original acquisition cost for the qualified nonprofit agency through state use service, shall be considered to retain a residual value of ten per cent of the original acquisition cost at the time of disposal.

(ii) The residual value amount shall be deducted from the acquisition cost of replacement equipment included with the next fair market price proposal using the forms, format, and procedures prescribed by the committee.

(iii) If it is determined that the equipment being disposed of has a residual value greater than ten per cent of the acquisition cost, the qualified nonprofit agency or CNA shall submit a bill of sale or certificate of trade-in for the amount of the residual value, to be deducted from the acquisition cost of replacement equipment included with the next fair market price proposal using the forms, format, and procedures prescribed by the committee.

(iv) If it is determined that the equipment being disposed of contains no residual value, the qualified nonprofit agency or CNA shall, using the forms, format, and procedures prescribed by the committee, document that the ordering office has inspected the equipment and certified it to be worthless.

(j) Equipment maintenance agreements

(i) Maintenance agreements with an annual cost in excess of one thousand dollars shall require three competitive quotations, whenever possible.

(ii) If the equipment is specified as a sole-source item by the ordering office, or is by nature sole-sourced, it can be explained as an exception.

(iii) Only that portion of the cost of the equipment maintenance agreement attributable to the service priced as a product being provided for state use service shall be calculated into the recommended fair market price and shall be documented using the forms, format, and procedures prescribed by the committee.

(k) Equipment maintenance

(i) The committee shall provide an approved schedule for the allowance of maintenance money for equipment with an acquisition cost in excess of one thousand dollars per individual item and one thousand five hundred dollars per series of like items which have not been fully amortized.

(ii) For equipment that is fully depreciated and is not covered by equipment maintenance agreements, an allowance of twenty per cent of one year's depreciation shall be taken and shall be documented using the forms, format, and procedures prescribed by the committee.

(F) Fair market price verified by same-as comparison

(1) The CNA and qualified nonprofit agency shall justify to the satisfaction of the committee that any service priced as a product presented as a comparison shall contain exactly the same specifications, requirements, and statement of work as the service priced as a product being recommended.

(2) At the discretion of the committee, industry survey and indexes may be utilized to aid in the establishment of fair market price. The committee shall publish a list of those surveys and indexes deemed appropriate. In no case shall the committee solely depend on an individual survey to arrive at a fair market price for a service priced as a product.

(G) Fair market price changes

(1) Initial price

The committee shall verify a fair market price for a new addition to the procurement list for a period of three years. The initial fair market price is for one year. Along with the initial base year fair market price, the committee shall provide a not-to-exceed percentage of increase or decrease for each of the two follow along years. Each follow along year is optional with the agreement of the qualified nonprofit agency and ordering office.

(2) Inflation factor

The committee shall publish at the start of each state of Ohio fiscal year the allowable percentage of increase or decrease for services priced as products.

(3) Mid-term revisions

If a qualified nonprofit agency, CNA, or ordering office feels that costs have increased or decreased beyond the allowable annual percentage established by the committee, an exception as outlined in rule 4115-7-15 of the Administrative Code shall be filed with the committee by the qualified nonprofit agency, CNA, or ordering office. The exception shall be evaluated by the committee using cost analysis to establish the new fair market price for the service priced as a product.

(4) Follow along year option

If the qualified nonprofit agency and the ordering office exercises their option not to be bound by the fair market price for each follow along year, a new fair market price will be developed using the procedures as outlined in paragraph (G)(5) of this rule.

(5) Renewals

At the completion of the initial three year period, the qualified nonprofit agency and CNA shall submit a new recommended fair market price predicated on cost analysis to the committee using the forms, format, and procedures prescribed by the committee. The committee shall exercise its responsibility and privilege by setting a new fair market price for the service priced as a product using cost analysis. The committee shall also provide the CNA and qualified nonprofit agency a not-to-exceed percentage of increase or decrease to be adjusted annually for each of the two follow along years.

Replaces: 4115-7-10 (rescinded 10/9/97)

R.C. 119.032 review dates: 04/07/2003 and 04/07/2005

Promulgated Under: 119.03

Statutory Authority: 4115.33

Rule Amplifies: 4115.31 , 4115.32 , 4115.33 , 4115.34 , 4115.35

Prior Effective Dates: 9/29/77, 2/1/98