Cost & Price Analyses Documenting Your Contract Files

Transcription

1 Cost & Price Analyses Documenting Your Contract Files Presenter: Jo Cunningham, Distinguished Member of Laboratory Staff, Sandia National Laboratories Insert Photo Here Session 2, 1:00pm-2:00pm Eastern Time Cost and Pricing Virtual Conference June 20, :00pm-4:00pm Eastern Time Initial Steps If you do good cost and price analysis, documentation should be easy. If you do not do good cost and price analysis, documentation will be difficult 2 1

2 Price Analysis Preferred to Cost Analysis when feasible Use published price lists use Internet where possible Compare to same items or services previously bought/sold Consider as applicable volume increases/decreases, volume discounts 3 Price Analysis New product with no prior purchase history: Based on established technology previously sold/bought? Discuss similarities, complexity contributing to price difference 2

3 Cost Analysis: Points that Must be Addressed Labor Categories, Labor Mix, and Labor Hours Direct Labor Rates Indirect Labor Rates Fully Burdened Labor Rates (DL, OH, G&A, Profit/Fee) Direct Costs: Material, Travel, etc. Cost Analysis: Points that Must be Addressed Indirect Rates: G & A, etc. Profit: Weighted Guidelines and Comparisons Desirable: Document Price Analysis after evaluation of costs Incorporate results of Audit Report (when audit was performed) 3

4 Cost Realism Analysis FAR Part 2, Definition of Cost Realism: Cost realism means that the costs in an offeror s proposal: 1. Are realistic for the work to be performed; 2. Reflect a clear understanding of the requirements; and, 3. Are consistent with the various elements of the offeror s technical proposal Cost Realism Analysis FAR (d) Cost realism analysis: 1. Cost realism analysis: The process of independently reviewing and evaluating specific elements of each offeror s proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed; Reflect a clear understanding of the requirements; and, Are consistent with the unique methods of performance and materials described in the offeror s technical proposal 4

5 Cost Realism Analysis FAR (d) Cost realism analysis continued: 2. Cost realism analyses shall be performed on costreimbursement contracts to determine the probable cost of performance for each offeror. I. The probable cost may differ from the proposed cost, and should reflect the Government s best estimate of the cost of any contract that is most likely to result from the offeror s proposal. The probable cost shall be used for purposes of evaluation to determine the best value. II. The probable cost is determined by adjusting each offeror s proposed cost, and fee when appropriate, to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis Cost Realism Analysis FAR (d) Cost realism analysis continued: 3. Cost realism analyses may also be used on competitive fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts when new requirements may not be fully understood by competing offerors, there are quality concerns, or past experience indicates that contractors proposed costs have resulted in quality or service shortfalls. Results of the analysis may be used in performance risk assessments and responsibility determinations. However, proposals shall be evaluated using the criteria in the solicitation, and the offered prices shall not be adjusted as a result of the analysis. 5

6 Labor What do you need to address labor? Labor mix, rates, and number of hours. Number of hours would not be applicable to a T & M or LH contract Example: The contractor quoted labor costs of $55,697 which the engineer found as reasonable What is lacking from this statement? Labor 1. How are you going to document that the rates are reasonable? Use published GSA schedules, Salary.com, databases and other guides such as RobertHalfTechnology.com that provide a nation-wide salary guide for all skill sets. 2. How are you going to document that the hours are reasonable? Use engineers opinions, experience with other contracts, independent estimates 3. How are you going to document fully burdened (loaded) rates are reasonable? Use comparisons with rates for similar qualifications and skills on similar contracts 6

7 Labor If you compare loaded rates on similar contracts, what assumptions do you have to make? 1. Actual rates that a person is paid is controlled by the market 2. Contractors will maintain an overhead and indirect structure to keep themselves competitive What do you have to show when making comparisons of labor rates? 1. That the labor categories are comparable Labor What other issues do you need to address? 1. Labor mix: Is the labor is direct, or is some of the labor is to be treated as indirect? 2. The basis of the engineers estimate: Historical data Similar program/project Vendor quotes 7

8 Materials and Subcontracts What do you need to document? 1. The estimate is sufficient to allow adequate analysis, cost, amounts and necessity. 2. What are your sources of information? Engineers opinions, market prices, similar contracts, difficulty and complexity of the effort. Materials and Subcontracts 3. What issues should you consider? Process contractor used to establish reasonability of its proposed prices: Decrements Once the contract is placed, the contractor may negotiate lower price with subs and vendors. Defective pricing issues may arise. Applies to fixed price contracts & potentially to T & M and Labor Hour contracts. Scrap rates Contract types of subcontracts If the material is a direct or indirect cost What would examples be of an indirect material cost? 8

9 Indirect Costs: Overhead and G&A Most common situation DCAA may provide a verification of rates 1. What should you put in your documentation? The date of verification of rates, what agency verified the rates, the dates of affectivity of the rates, and the name of the person providing the information. Indirect Costs: Overhead and G&A 2. What do you do if the rates that are verified are not the same as those that are proposed? If verified rates are lower, ACCEPT them! The buyer may need to negotiate rates if there are significant differences, and explain in the documentation the reasons for the final settled rates. In some cases, if rates are yet to be determined, the buyer may want to put in a reopener clause with a rate cap in the case of a FFP contract should the rates have a significant change. 9

10 Indirect Costs: Overhead and G&A 3. What do you do if your company or the Government has not established the rates? The buyer in rare circumstances may need to derive appropriate overhead rates. The buyer would have to document how she/he did this and address the exclusion of potential unallowable costs per FAR Profit or Fee What should you address in your documentation if you do not use weighted guidelines? Contractor effort (labor, materials, etc.), complexity of the work, and resources required by the Contractor for performance; Capital investments the types of equipment and facilities owned by the Contractor; Contractor facility and equipment (age, undepreciated value, cost effectiveness, etc.); Reliance on government-owned facilities; availability of operating capital, financial management practices, etc.; 10

11 Profit or Fee What should you address in your documentation if you do not use weighted guidelines? (continued) Independent development by Contractor of specialized processes, services or technology that will benefit the contract work; Profit or fee paid on previous contracts where an analysis has been done that documents the actual similarities and differences between the contracts and contract efforts used for comparison; Profit and fee rates for similar work under similar economic conditions in industry Profit or Fee If you choose to use weighted guidelines, what is the basis of your analysis? Weights are assigned to the following factors: Contractor effort: Labor, materials, ODCs, OH, G&A Contract Risk Capital Investment, FCCM Independent Research & Development (IR&D): investments & developed items employed. Special Program Participation (High visibility & priority) Productivity/Performance 11

12 Contract Revisions When it comes to performing cost and price justification for a contract revision, what are the issues you need to consider? Does proposed contract cost/price represent the true cost of revision, or is there any attempt by Contractor to get well for work underbid? How will buyer justify cost/price? Will price analysis or price and cost analysis be used? Will Contractor be required to submit price and cost data that will require a certification? Approval levels for the cost/price of a revision are often determined by cumulative value of work added and/or deleted. Profit or fee negotiated for a revision should be specific for that revision. If original contract was for the production of items, does revision price properly exclude nonrecurring costs such as tooling, design, and development costs? Firm Fixed Price Contract Revisions Issues you must address: Adding Scope - Is there an overlap? Is the contractor trying to charge us again for work completed Revisions for overruns on fixed price contracts cannot be issued. If work was not added to the contract, there is no increase to the contract price, unless there is an Economic Price Adjustment provision in the contract. Terminations and Descopes Include profit factors in calculations. 12

13 T&M and LH Contract Revisions Issues you must address: Option years and Rate Change Requests: Direct Labor Rate changes Indirect Rate changes Audit contractor s proposed revised rates? Consider cost of audits Use GII/DOL factors? Adding Funding: Will additional funding & work scope lower indirect rates? Assuming no GII/DOL provisions, has contractor experienced any changes in his indirect rates? Cost-type Contract Revisions Issues you must address: Costs incurred to date (existing scope) Estimated Costs to Complete (existing scope) Estimated Costs for New Scope plus Fee for New Scope Is this revision for an overrun on a Cost-Plus-Fixed-Fee contract? Identify the reason for an overrun. If the overrun does not represent added work, additional fee shall not be added. 13

14 Cost-type Contract Revisions Issues you must address, continued: Address Contractor s Quote(s), Buyer s Position, Negotiated Settlement, and Net Impact (An example of an analysis is in the attached spread sheets) Define how Fee will be paid in contract; monitor invoices. Key Words to Remember: Fee-bearing, Non-fee-bearing, Scope Creep, Scope Growth, Cost Overrun Cost and Pricing Data Cost or pricing data" (10 U.S.C. 2306a(h)(1) and 41 U.S.C. 254b) means all facts that, as of the date of price agreement, or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price, prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are data requiring certification in accordance with Cost or pricing data are factual, not judgmental; and are verifiable. While they do not indicate the accuracy of the prospective contractor's judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred. They also include such factors as: 1. Vendor quotations; 2. Vendor quotations; 3. Information on changes in production methods and in production or purchasing volume; 4. Data supporting projections of business prospects and objectives and related operations costs; 5. Unit-cost trends such as those associated with labor efficiency; 6. Make-or-buy decisions; 7. Estimated resources to attain business goals; and 8. Information on management decisions that could have a significant bearing on costs. 14

15 Cost & Pricing Date is Required When: Any contract which exceeds a value of $700,000, including priced options, where cost analysis is used to justify price, rate, or estimated cost reasonableness, and no exception applies, and Any revision to a contract requiring cost or pricing data which involves a price adjustment in excess of $700,000. What Must Be Documented: Whenever Cost or Pricing Data is required to be submitted, the buyer shall require the Contractor to submit a properly executed Certificate of Current Cost or Pricing Data. The buyer shall determine that the certificate is completed and signed by appropriate Contractor personnel. The buyer shall assure that the certificate is properly executed. 15

16 What Must Be Documented The certificate must appropriately identify the cost or pricing data, which is certified as being accurate, complete, and current. The date as of which the cost or pricing data is being certified shall be the date when the negotiations were concluded, and the contract price was agreed to by the buyer and the Contractor. This date usually precedes the actual contract date. If contract award is delayed and the circumstances or conditions have changed, the buyer shall be responsible for updating the certification as necessary. What Must Be Documented The "Date of Execution" should be as close as practicable to the date when price negotiations were concluded and the contract price agreed upon. This date may be different from the date as of which the cost or pricing data is being certified. The buyer must state he or she believes the certification is accurate, complete and current and that she/he relied on the information certified in making the award decision. 16

17 Documentation Examples The following examples reflect some of the methodologies that have worked well. These examples may not be for the same commodities for which your organization contracts, but the basic concepts are applicable. Summary Initial steps to remember in documentation: Facts lead to sound opinions Avoid specifications which can result in later audit findings Remember points that must be addressed: Price Analyses: Published price lists, valid comparisons Cost Analyses: Labor, Materials, Subcontracts, ODCs, OH & Profit/Fee Cost and Pricing Data Requirements Practice methods examples are in the briefing on the website 17

18 Summary Reference: Air Force Institute of Technology (AFIT) and Federal Acquisition Institute (FAI) jointly prepared a five-volume set of Contract Pricing Reference Guides to guide pricing and negotiation personnel. I - Price Analysis; II - Quantitative Techniques for Contract Pricing; III - Cost Analysis; IV - Advanced Issues in Contract Pricing; and V - Federal Contract Negotiation Techniques. These references provide detailed discussion and examples applying pricing policies to pricing problems. They are available at: Contact Information Jo Cunningham jecunni@sandia.gov Phone:

19 QUESTIONS? Press the Raise Hand icon to ask a phone question. To sync your phone line and Internet connection, go to the tabs above the PowerPoint slide and click on info to access your site session and attendee id numbers. or Type your question into the Q&A panel. 37 END Thank you for participating in today s program. 19