Federal glossary · Metric
Cost Realism Analysis (FAR 15.404-1(d)) evaluates whether proposed costs are realistic for the work to be performed. Required for cost-reimbursement contracts. The government assesses whether costs are understated (buying in) or overstated. Adjustments are made to the evaluated cost, not the proposed cost — so underpricing does NOT give you a competitive advantage. Unlike cost reasonableness, cost realism looks at whether costs reflect what performance WILL cost.
Example: The Simplified Acquisition Threshold or a fiscal-year budget measure.
Reference record · Sources: OMB budget guidance · Verified Jul 2, 2026 · Covers definition, governing source
Also known as
Cost Realism Analysis (FAR 15.404-1(d)) evaluates whether proposed costs are realistic for the work to be performed. Required for cost-reimbursement contracts. The government assesses whether costs are understated (buying in) or overstated. Adjustments are made to the evaluated cost, not the proposed cost — so underpricing does NOT give you a competitive advantage. Unlike cost reasonableness, cost realism looks at whether costs reflect what performance WILL cost.
is a metric concept federal contractors and grant writers run into across solicitations, regulations, and award filings
Cost Realism Analysis is a measurement used in federal contract evaluation, source selection, oversight, or performance management. For example: Example: The Simplified Acquisition Threshold or a fiscal-year budget measure. Understanding Cost Realism Analysis matters because evaluators use metrics like it to compare proposals quantitatively, score past performance, set award-fee outcomes, and decide who gets the next option year. Contractors who track how Cost Realism Analysis is calculated — and what target values look like in their NAICS or service area — write proposals that are concrete and defensible instead of generic and easily dismissed. Cost Realism Analysis also has implications for contract administration: getting the calculation methodology wrong post-award is a common source of disputes and contracting-officer modifications. Pair Cost Realism Analysis with the related metrics above to see how the federal government composes evaluation criteria into source-selection narratives.
Example: The Simplified Acquisition Threshold or a fiscal-year budget measure.
Meaning in practice
Cost Realism Analysis is a measure used to score, compare, or track government activity.
Where you’ll see it
You will see it in evaluation criteria, dashboards, scorecards, reports, and oversight reviews. Example: Example: The Simplified Acquisition Threshold or a fiscal-year budget measure..
Common confusion
People often confuse the metric with the threshold or decision rule attached to it.
What to do next
Check how the metric is calculated before you compare records or opportunities.
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