4115-7-14 Fair market pricing for products/commodities.

(A) Purpose

This rule prescribes the policy, guidelines, and procedures to be used in verifying the fair market price for products and commodities.

(B) General provisions

(1) Bid comparison shall be the preferred method to verify the fair market price of the products and commodities outlined in this rule.

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

(3) The proposed fair market price for the recommended product/commodity shall be comprised exclusively of the following cost elements:

(a) Direct labor,

(b) Indirect labor,

(c) Payroll taxes,

(d) Holiday/vacation/sick leave benefits,

(e) Materials/supplies,

(f) Freight,

(g) Equipment allowance,

(h) Equipment maintenance allowances, and

(i) Overhead/burden.

(4) Same-as comparison may be used to verify fair market price if an exact match exists for comparison.

(5) 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.

(6) The qualified nonprofit agency or CNA must demonstrate that a significant amount of value will be added by individuals with severe disabilities through labor expended in the manufacturing, packaging or conversion of a product or commodity under consideration for addition to the procurement list.

(C) Fair market price verified by bid comparison

(1) If the product or commodity is currently being purchased competitively, the initial fair market price recommended to the state use committee (Hereinafter referred to as the "committee") by the CNA or qualified nonprofit agency shall be the average of all the bids received by the ordering office on the most recent procurement award from responsive and responsible bidders, adjusted for discounts, and which are no more than thirty-five per cent above or below the award price.

(2) If it is found that the most recent procurement award 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 all the bids received from responsive and responsible bidders, adjusted for discounts, which are 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 the 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) NIGP class and item number,

(d) Relevant specification data,

(e) Samples (where available), and

(f) Qualified nonprofit agency prevailing wage surveys.

(D) Fair market price verified by cost analysis

(1) If the product or commodity has not recently been purchased competitively, a 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, CNA and ordering office.

(2) Using the forms, formats, and procedures as prescribed by the committee, the CNA or qualified nonprofit agency shall supply the committee with 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." The prevailing labor wage survey shall be presented to the committee.

(b) Indirect labor

(i) For purposes of this rule, indirect labor wages shall be considered supervisory positions, quality control and inspection, material handling/shipping/receiving, maintenance and repair, janitorial and building maintenance and all other positions contributing to the production of a product or commodity which do not directly add value to the end product and which are not recovered in burden or overhead.

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

(iii) For 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.

(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 taxes customary to the private sector, unless stipulated in Chapter 3309. of the Revised Code, and would be paid to the workers, supervisors, and indirect labor positions producing the product or commodity. The allowance is twelve per cent of the hourly wage for both direct and indirect positions.

(ii) 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) Holiday/vacation/sick leave benefits

(i) Allowable leave shall be established at one hundred twenty hours per year 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) Materials

(i) The qualified nonprofit agency and/or CNA shall provide to the committee an itemized and complete bill of material. Except as provided in paragraph (D)(2)(e)(ii) of this rule, the qualified nonprofit agency and/or CNA shall identify those materials which comprise eighty per cent of the total material costs. Three documented competitive quotations from responsive and responsible bidders are required for materials comprising eighty per cent of the total material cost. The cost submitted for analysis shall be predicated on the lowest discounted bid received from a responsive and responsible bidder.

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

(iii) 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.

(f) Freight

(i) Unless specified in writing by the ordering office, all freight may be considered to be less than truck load (L.T.L.), free on board (F.O.B.) at the qualified nonprofit agency.

(ii) Should the ordering office select F.O.B., their location, and the projected annual cost of freight exceeds one thousand dollars, the qualified nonprofit agency or CNA shall furnish the committee three documented and discounted competitive freight quotations from responsive and responsible bidders. The cost submitted for analysis shall be predicated upon the lowest discounted bid received from a responsive and responsible bidder.

(iii) All parcel delivery shall be made F.O.B. at the qualified nonprofit agency by the ordering office's choice of delivery service. The cost of the parcel delivery service shall be appropriate to the needs and situation of the ordering office.

(iv) 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.

(g) Equipment allowance

(i) Equipment shall be depreciated and the cost included for the product or commodity using the forms, format, useful life tables and procedures prescribed by the committee. Only equipment or service contracts utilized by the qualified nonprofit agency for state use service in the production of the product or commodity shall be allowed as part of the fair market price calculation.

(ii) That portion of the service life of the equipment and the depreciation totals representative of the portion utilized by the qualified nonprofit agency for state use service in the production of the product or commodity shall be documented using the forms, format, and procedures prescribed by the committee.

(iii) If the qualified nonprofit agency and CNA submit a fair market price recommendation 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 calculated into the recommended fair market price shall be determined by one of the following methods:

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

(ii) State term schedule, or

(iii) Competitive quotation.

(b) Competitive quotations shall require the solicitation of and presentation to the committee of three written, competitive, responsive, responsible, and discounted quotations, except as noted in paragraph (D)(2)(g)(iii)(D) of this rule. The allowable equipment cost calculated into the proposed fair market price shall be at the price represented by the lowest, responsive, and responsible competitive discounted quotation.

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.

(c) 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.

(d) 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.

(h) 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 offices inspected the equipment and certified it to be worthless.

(i) Equipment maintenance allowances

(i) Maintenance agreements calculated into the fair market price mix with an annual cost in excess of one thousand dollars shall require three competitive bids, whenever possible.

(ii) 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.

(iii) For equipment that is fully depreciated and that 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.

(iv) Only that portion of the cost of the equipment maintenance agreement attributable to the product or commodity being produced shall be calculated into the fair market price and shall be documented using the forms, format, and procedures prescribed by the committee.

(v) 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.

(vi) 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 4115-07-15 of the Administrative Code.

(j) General allowances

(i) The recommended fair-market price for a product or commodity may include the following percentages as guidelines:

(a) A maximum five per cent of total direct labor as rework allowance,

(b) A maximum five per cent of total material costs as scrap/rework allowance,

(c) A maximum five per cent of total material costs as tooling/supplies allowance,

(d) The cost of money on equipment.

(ii) Should money be borrowed or invested by a qualified nonprofit agency to purchase capital equipment, that portion of the cost of capital incurred by a qualified nonprofit agency used to purchase capital equipment attributable to the product or commodity being provided for state use service shall be calculated into the fair market price of the product or commodity and shall be documented using the forms, format, and procedures prescribed by the committee.

(iii) Should the qualified nonprofit agency invest money on hand to purchase capital equipment, an allowance equal to the interest rate on the ninety day treasury bill (discounted rate), times the remaining depreciation balance on the equipment depreciation form shall be taken. The interest rate in effect three months prior to the costing being presented to the committee shall be used. The interest rate and the dollar value of the remaining depreciation shall be updated on an annual basis.

(iv) Should the qualified nonprofit agency borrow money to purchase capital equipment, the qualified nonprofit agency shall document the cost of interest calculated into the recommended fair market price mix using forms, formats, and procedures prescribed by the committee.

(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.

(k) Overhead/burden

(i) The qualified nonprofit agency shall recover up to seventy-five per cent of the total direct labor dollars including, but not to exceed, the payroll taxes and benefits guidelines as defined in paragraphs (D) (2) (c) (i) and (D) (2) (d) (i) of this rule (not including rework, etc.) 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,

(h) Safety material, supplies, and training,

(i) 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.

(iii) All costs associated with this element shall be documented using the forms, format, and procedures prescribed by the committee

(E) 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 product or commodity presented as a comparison contain exactly the same specifications, requirements, product, item, and commodity code as the product or commodity being recommended to the committee for comparison.

(2) As part of the fair market price recommendation, the qualified nonprofit agency and CNA shall provide the committee the following when requesting same-as comparison:

(a) List of all identified potential vendors of the product or commodity;

(b) The price at which each vendor would supply the product or commodity to the state of Ohio if it were competitively bid;

(c) The quantity breaks prices at which were obtained;

(d) Addresses, telephone numbers, and contacts for all vendors;

(e) Details of applicable discounts and other reductions; and

(f) All catalogue and trade information.

(3) At the discretion of the committee, industry surveys and indexes may be utilized to aid in the verification of the 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 or index to arrive at a fair market price for a product or commodity.

(F) Fair market price changes

(1) Initial price

The committee shall verify the fair market price for a period of three years. The initial fair market price is for a period of 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, CNA, 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 products and/or commodities.

(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, the qualified nonprofit agency, CNA, or ordering office shall file an exception as outlined in rule 4115-7-15 of the Administrative Code. The exception shall be evaluated by the committee using cost analysis to verify the new fair market price for the product or commodity.

(4) Each follow along year option

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

(5) Renewals

At the completion of the initial three year cycle, the qualified nonprofit agency and CNA shall submit a new recommended fair market price predicated on cost analysis to the committee. The committee shall exercise its responsibility and privilege by setting a new fair market price for the product or commodity using cost analysis. The committee shall also provide the CNA and qualified nonprofit agency a not-to-exceed percentage of increase for each of 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