Appendix C - Profit Guildines Chart.pdf
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- West Point Renovations Construction & Repairs
- Solicitation number
- PANHES-26-P-0000-029922
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This document is a Profit Guidelines template for Construction using an Alternate Structured Approach methodology. The guidelines establish a framework for determining fair and reasonable profit percentages on federal construction contracts by evaluating seven weighted factors that collectively produce a total profit percentage.
The seven evaluation factors are: Degree of Risk (20-point rate), Relative Difficulty of Work (15-point rate), Size of Job (15-point rate), Period of Performance (15-point rate), Contractor's Investment (5-point rate), Assistance by Government (5-point rate), and Subcontracting (25-point rate). Each factor receives a weight between 0.03 and 0.12 based on specific procurement circumstances, with the final profit percentage calculated by multiplying each factor's rate by its assigned weight and summing the results. Degree of Risk weights range from 0.03 for after-the-fact equitable adjustments to 0.12 for high-risk lump sum items. Relative Difficulty of Work weights from 0.03 for simple jobs to 0.12 for complex work. Size of Job uses a declining weight scale: 0.12 for work under $100,000, proportional weights from 0.12 to 0.05 for $100,000 to $5,000,000, 0.04 for $5,000,000 to $10,000,000, and 0.03 for work exceeding $10,000,000. Period of Performance weights 0.03 for work not exceeding one month, proportionally scales to 0.12 for work exceeding 24 months. Contractor's Investment and Assistance by Government each weight between 0.03 and 0.12 based on average to above-average conditions. Subcontracting weights inversely with the percentage of work subcontracted: 0.03 where 80 percent or more is subcontracted, increasing to 0.12 where the contractor performs all work with its own forces.
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Factor Rate Weight Value Degree of risk 20 0.00 0 Relative difficulty of work 15 0.00 0 Size of job 15 0.00 0 Period of performance 15 0.00 0 Contractor's investment 5 0.00 0 Assistance by Government 5 0.00 0 Subcontracting 25 0.00 0
TOTAL 100 0
Profit Guidelines for Construction Alternate Structured Approach
(4) Period of Performance. Work not to exceed 1 month is to be proportionately weighted at 0.03.
Durations between 1 and 24 months are to be proportionately weighted between 0.03 and 0.12. Work in excess of 24 months is to be weighted at 0.12.
(5) Contractor’s Investment. To be weighted from 0.03 to 0.12 on the basis of below average, average and above average. Consider the amount of subcontracting, Government-furnished property or data, such as surveys, method of making progress payments, and any mobilization payment items.
(1) Degree of risk. Where the work involves no risk or the degree of risk is very small, the weighting should be 0.03; as the degree of risk increases, the weighting should be increased up to a maximum of 0.12. Lump sum items shall generally have a higher weight than unit price items. Consider the nature of subcontractors, amount and type of labor included in costs and whether the negotiation is before or after performance of the work. Modifications, settled before the fact, have a much greater risk than those settled after the fact. A weight of 0.03 is appropriate for after the fact equitable adjustments and/or settlements.
(b) Based on the circumstances of the procurement action, each of the above factors shall be weighted from
0.03 to 0.12, as indicated below. “Value” shall be obtained by multiplying the rate by the weight. The value column, when totaled, indicates the fair and reasonable profit percentage under the circumstances of the particular procurement.
(2) Relative Difficulty of Work. If the work is difficult and complex, the weight should be 0.12 and should be proportionately reduced to 0.03 on the simplest of jobs. This factor is tied in to some extend with the degree of risk. Other things to consider are the nature of the work, by whom it is to be done (i.e., subcontractors, consultants), etc.
(3) Size of Job. Work of $100,000 shall be weighted at 0.12. Work estimated between $100,000 and $5,000,000 shall be proportionately weighted from 0.12 to 0.05. Work from $5,000,000 to $10,000,000 shall be weighted at 0.04. Work in excess of $10,000,000 shall be weighted at 0.03. It should be noted that control of fixed expenses generally improves with increased job magnitude.
(6) Assistance by Government. To be weighted from 0.12 to 0.03 on the basis of average to above average.
Consider use of Government-owned property, equipment and facilities, expediting assistance, etc.
(7) Subcontracting. To be weighted inversely proportional to the amount of subcontracting. Where 80 percent or more of the work is to be subcontracted, use 0.03. The weighting should be increased proportionately to 0.12 where all the work is performed by the contractor’s own forces.
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