Any proposal submitted for the negotiation of prices for items of supplies shall distribute costs within contracts on a basis that ensures that unit prices are in proportion to the items' base cost (e.g. manufacturing or acquisition costs). Any method of distributing costs to line items that distorts unit prices shall not be used. For example, distributing costs equally among line items is not acceptable except when there is little or no variation in base costs. When requested by the Contracting Officer, the Offeror/Contractor shall also identify those supplies that it will not manufacture or to which it will not contribute significant value.Most contractors and offerors are unfamiliar with this provision and its rare that contracting officers will even request the information. When they do, its probably because they see something in the pricing data that doesn't look right (such as the $600 hammer) or some item where proposed cost exceeds the intrinsic value of that item. And, when the information is requested, contractors/offerors often look befuddled because, even long time contractors, have never been subjected to such a request and are not sure where to start.
This requirement does not apply to acquisitions below the simplified acquisition threshold, construction or architect-engineer services, service contracts where supplies are not required or commercial items (see FAR 15.408(f)).