Pricing_Guide_for_FEMA_Solicitations.pdf

POLICY

Non-Federal Entities (“NFE’s”) must evaluate pricing using either cost or price analysis in order to ensure that required supplies and/or services are procured at fair and reasonable prices. The current Federal procurement standards set by the Uniform Rules states that NFEs must perform some form of cost or price analysis in connection with every federally assisted procurement action, including contract modifications that exceed the simplified acquisition threshold, which is currently set at $150,000.3 (Emphasis added) The Department of Homeland Security (“DHS”) Office of Inspector General (“OIG”) has frequently opined that the absence of cost or price analysis in contracting increases the likelihood of unreasonable costs and misinterpretations, or errors in pricing.

Accordingly, failure to conduct an appropriate cost or price analysis may jeopardize the possibility for full reimbursement of otherwise eligible expenses.

However, despite imposing this requirement upon NFE’s to perform a cost or price analysis, the current Federal procurement standards are curiously silent as to what form such a cost or price analysis should take, beyond stating that “the method and degree of analysis is dependent upon the facts surrounding the particular procurement situation.”4 Due to the lack of additional guidance in the current (and superseded) regulations, NFEs often inquire as to what techniques or steps they must perform in order to meet the regulatory requirements to conduct a price or cost analysis.

NFEs must ensure that they conform to and comply with, any local, state, and/or tribal procurement laws and regulations pertaining to the specific use and application of cost or price analysis, in order to also meet the Federal procurement standards requiring cost or price analysis for all procurements above the simplified acquisition threshold of $150,000 – unless a more stringent requirement exists. Refer to the Uniform Rules at 2 C.F.R. §§ 200.318-326 for Federal procurement standards. In situations where a direct conflict in applicable laws exists, the NFE must comply with the more stringent standard.

If cost or price analysis is not addressed by local, state or tribal (where applicable) procurement laws and regulations, FEMA has previously provided very limited guidance on “cost analysis” concerning only debris removal contracts.6 If cost or price analysis issues are raised concerning situations involving anything other than debris removal contracts and no local, state or tribal guidance is provided, FEMA typically utilizes guiding principles drawn from the Federal Acquisition Regulations (“FAR”) (which apply to Federal government procurements) as a tool to analyze the adequacy of the cost or price analysis conducted by the NFE in connection with its procurement.7

The current Federal procurement standards, to include the revised cost or price analysis requirements found at 2 C.F.R. § 200.323, went into effect on December 26, 2014, with the implementation of the Uniform Administrative Requirements, Cost Principles, and

Audit Requirements for Federal Awards.

3 See, 2 C.F.R. § 200.88. Simplified acquisition threshold means the dollar amount below which a NFE may purchase property or services using small purchase methods. NFEs adopt small purchase procedures in order to expedite the purchase of items costing less than the simplified acquisition threshold. The simplified acquisition threshold is set by the Federal Acquisition Regulation at 48 CFR Subpart 2.1 (Definitions) and in accordance with 41 U.S.C. 1908. Please note that the dollar value associated with the simplified acquisition threshold is periodically adjusted for inflation.

4 2 C.F.R. § 200.323(a).

6 FEMA Recovery Fact Sheet, RP9580.201, Debris Contracting Guidance, Attachment 1: Debris Removal Contract Cost Analysis, dated 9/27/10. As of 1 January 2016, FEMA’s Public Assistance Branch has replaced its 9500 series policies with FP 104-009-2, Public Assistance Program and Policy Guide. The Policy Guide does not address cost or price analysis beyond referencing 2 C.F.R. pt. 200. The 9500 series policies, however, will remain in effect for all projects associated with disasters or emergencies declared prior to 1 January 2016. Accordingly, NFEs may use RP9580.201 as amplifying guidance as to how to apply cost analysis to debris removal contracts, in conjunction with the information provided in this Guide.

7 See, 48 C.F.R. Vol. 1, Chapter 1, Parts 1-51, Federal Acquisition Regulation (e.g. “FAR”); or http://farsite.hill.af.mil for a streamlined website for the FAR and the various Agency FAR supplements – select for example, FAR part 15, subpart 15.4 “Contract Pricing.” While not strictly applicable to the Federal procurement standards found at 2 C.F.R. pt. 200, the FAR incorporates many commonly used techniques of cost or price analysis, and can be useful in assisting NFEs conduct their own cost or price analyses, where no additional amplifying guidance is available or applicable.

UNIFORM RULES COST OR PRICE ANALYSIS STANDARDS – 2 C.F.R. § 200.323

NFE must perform a cost or price analysis in connection with every procurement action in excess of the Simplified Acquisition

Threshold, including contract modifications.9 The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, the non-Federal entity must develop an independent estimate before receiving bids or proposals.10

NFE must negotiate profit as a separate element of the price for each contract in which there is no price competition and in all cases where cost analysis is performed.11 To establish a fair and reasonable profit, consideration must be given to the complexity of the work to be performed, the risk borne by the contractor, the contractor’s investment, the amount of subcontracting, the quality of its record of past performance, and industry profit rates in the surrounding geographical area for work.12

Costs or prices based on estimated costs for contracts under the Federal award are allowable only to the extent that costs incurred or cost estimates included in negotiated prices would be allowable for the non-Federal entity under Subpart E—Cost Principles of this part.13 The non-Federal entity may reference its own cost principles that comply with the Federal cost principles.

The cost plus a percentage of cost and percentage of construction cost methods of contracting must not be used. (Emphasis added:

These contracting methods must never be used.)

9 Cost or price analysis is required for all procurements exceeding the Simplified Acquisition Threshold. The Simplified Acquisition Threshold is currently set at $150,000, but is subject to periodic revision.

10 Must conduct an independent cost estimate in all situations regardless of dollar threshold. A variety of methods exist to meet this requirement. For example, an independent cost estimate can be conducted utilizing can be established through the use of market research that identifies the median price for a particular type of supply or service.

11 Cost analysis is generally performed for cost-reimbursement type contracts, Architecture & Engineering contracts, or professional services contracts, for example.

12 In other words, the more difficult or complex the required work is, the more likely a NFE can justify higher profits as fair and reasonable within the overall context of the procurement.

IMPLEMENTING THE CURRENT STANDARDS UNDER THE UNIFORM RULES

Contract Cost or Price. NFEs must perform a cost or price analysis in connection with every procurement action in excess of the simplified acquisition threshold, including contract modifications. 2 C.F.R. § 200.323(a) In other words, whenever a procurement exceeds the current simplified acquisition threshold, which is $150,000, the NFE must perform a cost or price analysis.

Method and Degree of Analysis and Independent Estimate. The method and degree of analysis is dependent on the facts surrounding the particular procurement situation, but as a starting point, the NFE must develop independent price or cost estimates before receiving bids or proposals. 2 C.F.R. § 200.323(a) In other words, besides the requirement to develop an independent estimate (at any dollar threshold), NFEs must determine for themselves, what the reasonable and appropriate form of analysis will take – whether that will be price or cost analysis – and the particular means of doing so. Under this scenario, the method and degree of analysis will be dictated by the complexity of the procurement and the facts and circumstances associated with it.

For example, generally speaking, the less complex a procurement is, the more likely it will be reasonable and appropriate to utilize a form of price analysis to meet this requirement; while on the other hand, the more complex a procurement is, the more likely the situation will necessitate the use of a cost analysis to adequately determine a fair and reasonable price.

Price Analysis. Price analysis is the most commonly used method to determine fair and reasonable price because it is less complex and time consuming than other methods. It involves the examination and evaluation of a proposed price without evaluating its separate cost elements (e.g. labor category rates, individual components of cost, etc.) and proposed profit (unless otherwise instructed to by the Uniform Rules).

i. When Used: This is the form of analysis typically used when acquiring commercial items (which are items that generally maintain similar standards or quality and differ only in price) or when using the procurement through sealed bidding method.22

22 Under the new Federal procurement standards associated with the Uniform Rules, price analysis may be used in situations where adequate price competition is lacking and where non-competitive/sole source procurements exist, where price analysis techniques are available and use is appropriate. This was not the case under the previous cost or price analysis standards.

ii. Techniques: If local, state or tribal (where applicable) procurement standards do identify and require the use of specific techniques, these requirements should be applied.

1. Comparing proposed prices received in response to the solicitation. Typically, adequate price competition establishes a fair and reasonable price,24 but is dependent upon the following:

a. At least two responsible bidders respond to a solicitation;

b. Each bidder must be able to satisfy the requirements of the solicitation;

c. The bidders must independently contend for a contract to be awarded; and

d. Each bidder must submit priced offers/bids that are responsive to the expressed requirements of the solicitation.

If the four conditions outlined above are met, price competition is adequate unless:

a. The solicitation was made under conditions that unreasonably deny one or more known and qualified bidders an opportunity to compete;

b. The low competitor has such an advantage over other competitors that it is practically immune to the stimulus of competition; and

c. The lowest final price is not reasonable, and this finding can be supported by facts.

24 For example, under sealed bidding, by virtue of opening each individual bid and comparing the associated prices to each other, a NFE will be considered to have conducted price analysis.

2. Comparing prior (historical) proposed prices and contract prices with current proposed prices for the same or similar goods or services.

a. This scenario generally occurs where NFEs procure the same or similar supplies or services on a recurring or frequent basis, so that the prices proposed and ultimately accepted contain little variation.

b. Changes in quantity, quality, delivery schedules, and the economy cause price variations. Each differing situation must be analyzed through trend analysis. Also ensure that the previous price was fair and reasonable. This determination must be based upon a review of the documentation contained in the previous files.

3. Comparing offers with competitively published catalog prices, published market prices, or similar indices.26

a. Established Catalog Prices. The idea behind these types of prices is that a commercial demand exists and suppliers have been developed to meet that demand. This technique tries to ensure that NFEs receive at least the same price as other buyers in the market for the same or similar items. NFEs must ensure that such prices do not simply reflect internal pricing documents and must establish the following:

▪ Established catalog prices exist;

▪ The items are commercial in nature;

▪ They are sold in substantial quantities; and

▪ They are sold to the general public.

b. Established Market Prices. Similar to established catalog prices, except there is no catalog. A market price is a current price established in the usual or ordinary course of business between buyers and sellers free to bargain. These prices must be verified by buyers and sellers who are independent of the bidder.

26 Under this scenario, the key requirement is that the price lists, market prices, or similar indices, such as commercial price indexes, are published or publicly available for purposes of comparison and are not based upon internal documentation not available to the general public. This ensures that the proposed prices can be compared to actual prices paid for similar supplies or services, for what in essence is the going rate determined by the market place.

4. Comparing proposed prices with independently developed price estimates prepared by, or on the behalf of the NFE.

a. Under this scenario, price estimates would be developed and used as the basis by which proposed prices would be evaluated against to determine whether a proposed price was fair and reasonable.

In other words, the closer the proposed price is to the independently developed price estimate for the requirement, the more likely the proposed price would be considered to be fair and reasonable.

b. Verify the facts, assumptions, and judgments used. Have the estimator provide the method and data used in developing the estimate. For example, did prices come from current catalogs or industry standards? Be comfortable with the estimate before relying on it as a basis for determining a price to be fair and reasonable.

5. Comparing proposed prices with prices for the same or similar items obtained through market research.

a. Under this scenario, a NFE performing adequate and sufficient market research in preparation for the solicitation and award of a potential contract, can use information obtained concerning pricing for similar or identical goods and services as a basis by which to compare actually received prices submitted by bidders. See also, established market prices (above).

6. Prices set by Law or Regulation.

a. Prices set by law or regulation are typically considered to be fair and reasonable. Adequately document the situation by acquiring a copy of the rate schedules set by the applicable law or regulation for your contract files. Once these schedules are obtained, verify that they apply to your situation and that the correct price is being charged.

iii. Tools for Price Analysis:

1. Competitor’s Catalogs – ensure that compared catalogs are from the same time frame.

2. Newspaper Advertisements – ensure that the ad/s is/are current.

3. Government Catalogs – FEMA’s Public Assistance Schedule of Equipment Rates.27 Additionally, Federal

Supply Schedules may be used for price comparison even though a NFE may not be able to fulfill its requirement through them.

4. Industrial Catalogs – for example, the National Mechanical Contractor Estimator (NMCE) is an excellent potential source for pricing mechanical items.

5. Government Price Index – use as a comparison approach to price and cost analysis. An index can be used with historical prices to analyze, compare, and predict current prices for a specific product or service.

27 The Schedule of Equipment Rates is available at, https://www.fema.gov/schedule-equipment-rates.

Cost Analysis. Cost analysis is the review and evaluation of the separate cost elements (i.e. labor hours, overhead, materials, etc.)

and proposed profit or fee in a bidder’s proposal in order to determine a fair and reasonable price. Cost analysis includes the application of judgment to determine how well the proposed costs represent what the cost of the contract should be, assuming reasonable economy and efficiency. Cost analysis differs from price analysis in that cost analysis focuses on the reasonableness of each estimated cost element and adds a reasonable rate of profit/fee to arrive at the contract price.

i. When Used: This is the form of analysis typically used to establish the basis for negotiating contract prices when:

1. Using the procurement through competitive proposals method;

2. Using procurement through sealed bidding and price competition is not sufficient;

3. Any other case when price analysis, by itself, does not ensure price reasonableness; and

4. Procuring professional, consulting, and architectural engineering services contracts.

ii. Techniques:

1. Verification of the cost or pricing data (a breakdown of costs).

2. Evaluation and verification of individual cost elements; and

a. The elements add up to the total price;

b. Understanding the need for each element of cost;

c. The same thing does not appear in more than one statement of cost; and

d. The general format compares with the breakdown for similar items or services from the same source.

3. Comparison of costs proposed for individual cost elements with previously incurred actual costs and independently developed estimates by the NFE.

iii. A Contractor’s Proposal Should Include Comparisons of Current Estimated Costs with:

1. Actual costs previously incurred;

2. The most recent cost estimate for the same or similar items or with a series of prior estimates;

3. Current cost estimates from other possible sources providing the same or similar supply or service; and

4. Independent forecasts of future costs.

https://www.fema.gov/schedule-equipment-rates

iv. Tools for Cost Analysis:

1. Technical Evaluation – NFE’s can use this method when evaluating offers by either price or cost analysis.

While the technical evaluation is not directly related to price, it involves the NFE’s assessment of quantitative and qualitative factors which influence the offered price. Technical evaluations allow the NFE to evaluate the functions that cause costs. Technically trained and experienced personnel are in the best position to assist in the analysis of hours, quantities, tooling, testing, head counts, productivity, and similar factors.

2. Accounting Records – can show the cost of a job, but are of limited value in determining reasonableness.

Technical skills and judgments are required to determine reasonableness and necessity of those costs.

3. When a technical evaluation is required prior to negotiations, it should address such things as:

a. An estimate of necessary labor-hours with an indication as to where adjustments are desirable;

b. Reasonableness of proposed material type, quantity, and necessity;

c. The need for acquiring equipment and which equipment should be considered as general purpose or unique to the performance of a particular contract;

d. The possibility and availability of recipient or subrecipient property;

e. Number, location, and need for any recipient or subrecipient funded trips by contractor personnel;

f. A summary statement as to whether or not labor, material, travel, and other cost elements are reasonable along with the evaluator’s rationale.

4. Auditor Pricing Support – provides verification of proposed costs and an examination of the vendor’s estimates; for example, certain categories of materials, salaries of contractor personnel, or the actual cost elements may have contributed to an overhead rate. The auditor should also tell the NFE of all prohibited costs included in the contractor’s proposal, as determined by the Uniform Rules Cost Principles, or cost principles applicable under the local, state and/or tribal procurement policies.

Negotiation of Profit. NFE’s must negotiate profit as a separate element of the price for each contract in which there is no price competition and in all cases where a cost analysis is performed. To establish a fair and reasonable profit, consideration must be given to:

i. The complexity of the work to be performed;

ii. The risk borne by the contractor;

iii. The contractor’s investment;

iv. The amount of subcontracting;

v. The quality of the contractor’s record of past performance; and

vi. Industry profit rates in the surrounding geographical area for similar work. 2 C.F.R. § 200.323(b)

Cost Plus Percentage of Cost Contracts. NFEs are prohibited from using the cost plus percentage of cost and percentage of construction cost (also referred to as “CPPC”) methods of contracting. 2 C.F.R. § 200.323(d)

Estimated Costs. Costs or prices based on estimated costs for contracts under the FEMA award are allowable only to the extent that costs incurred or cost estimates included in the negotiated prices would be allowable for the NFE under the Federal cost principles at

2 C.F.R. Part 200, subpart E. The Cost Principles identify and discuss what costs are allowable (permissible), allocable (associated with the contract), and reasonable (self-explanatory). The NFE may also reference its own cost principles that comply with the

Federal cost principles.