Attachment_3_Cost_Price_Instructions.docx

12 Guide to Contract Pricing

Attachment 3: Instructions to Offerors for the Cost/Price Spreadsheet

Submit a Costs/Price Proposal, supporting your proposed performance work structure. The Costs/Price Proposal must show each Direct Cost Element (e.g., Direct Labor, Material, Other Direct Costs), each Indirect Cost (Overhead) element, and the proposed profit.

NOTE: See attached Price/Cost Analysis Model that examples of a cost/price data cost elements required for the Prospective Contractors’ proposal submission.

The guidance contained in Federal Acquisition Regulations (FAR) Part 15-Table 15-2, “Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data Are Required to prepare your Proposal Submissions”.

Provide sufficient quality and detail to enable the Government Price/Cost Analyst to perform cost, price and profit analysis and/or cost realism analysis. The following are some basic principles to consider while preparing your cost/price proposal:

· Show the basis of each cost element estimate explaining the logic, method, and data used to determine the estimate. The basis of the estimate serves as the credibility thread to convince reader that calculation has been well researched and is not frivolous.

· Identify the sources of basic data supporting your estimates, and show that your estimate is based on the most current, complete, and accurate data.

· Clearly identify the facts and judgments used in your estimate, so that facts can be verified and judgment factors can be evaluated. Facts are the contractor’s assertions that the Government PCA can trace to the source. Judgment factors are based on your opinion but can be evaluated by the PCA.

· All cost elements must be comparable with and consistent with your Performance Statement of Work (PWS) and Technical Proposal. After contract award, you will be required to claim reimbursement for cost incurred based on reports showing cost incurred by each cost element.

Considerations For Contractor’s Proposal Preparation

We are looking for your best estimate (based on current, complete, and accurate data) of what you believe it will cost to perform the services described in your associated Technical Proposal.

The Government anticipates the award of a Cost-Reimbursement Contract. Cost-Reimbursement Contracts have a Limitation of Cost clause similar to that found at FAR 52.232-20, which provides that “The Contractor agrees to use its best efforts to perform the work specified…and all obligations under this contract within the estimated cost.” The Limitation of Cost clause will require you to notify the Government when you have reason to believe that the actual cost of performance will be either greater or substantially less than had been previously estimated. The contractor must definitely notify the Government when it expects the cost to be incurred within the next 60 days, when added to all costs previously incurred, will exceed 75 percent of the estimated cost specified in the agreement. These notifications must also be accompanied by a revised estimate of the total cost of performing this contract. The Government will then advise you of how to proceed.

The contract agreement to be awarded will be a cost-based price rather than a market-based price. Cost-based prices are offered when market forces (e.g., competitive pricing) cannot be relied on to judge the fairness and reasonableness of a contractors proposed price offer. When such a cost-based price is proffered to the Government, the Government requires the submission of Costs/Pricing Data and/or a Costs/Price Proposal, in accordance with standards and guidance in FAR Table 15-2 (“Instructions for Submitting Cost/Price Proposals When Cost or Pricing Data Are Required”).

The Prospective Contractors proposal submission requires them to disclose data which can be challenged by the Government. In-economies, Inefficiencies, and Ineffectiveness inherent in the contractors’ proposal will/should be disclosed and discussed. By analyzing data such as labor hours and labor mix, the Government will determine if the contractors proposed effort is responsive to the Government’s requirement.

Cost Analysis is the review and evaluation of the separate cost elements and profit in the Prospective Contractor’s proposal utilizing a subject-matter expert judgment to determine the accuracy of the proposed costs (what the cost of the contract should be) assuming reasonable economy and efficiency. See FAR 15.404-1(c).

Cost Realism Analysis is the process of independently reviewing and evaluating specific elements of the Contractor’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 Contractor’s Technical Proposal. Cost Realism Analysis must be performed on Cost Reimbursement contracts to determine the probable costs of performance for the Prospective Contractor. See FAR 15.404-1(d).

Profit Analysis is covered in FAR 15.404-4(b) and (d), which mandates and describes the “structured profit approach,” used to establish the profit or fee portion of the total compensation package. The structured profit approach attempts to establish a total profit objective by adding profit increments for various major cost inputs and for other contract factors. And, the structure profit approach encourages contractors to accept greater cost responsibility by establishing substantially different profit levels for different types of contracts. The structured profit approach provides for a much lower profit for the risk-free cost-reimbursement contracts than for fixed price contracts.

The Government expects the Prospective Contractor to provide constant updates to your originally submitted cost/price proposal, up to the time of signed contractual agreement. The attestation language in the Certification is your representation that you have disclosed all information that would have a material impact on price negotiations. If a subsequent investigation shows that you failed to provide “current, complete and accurate data,” the Government may invoke the Price Reduction for Defective Pricing clause (similar to that found in FAR 52.215-10) in the contract to negotiate a price reduction.

There’s an adage in government contract cost estimating, “as you accumulate cost (in your cost accounting system), so must you estimate.”

FAR 16.301-1 states that “Cost-reimbursement types of contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk) without the approval of the contracting officer.” The contractor’s entitlement to cost-reimbursement can only be established retrospectively by measuring all cost incurred during contract performance. Accordingly, FAR 16.301-3(a) provides that a cost-reimbursement contract may be used only when:

· The contractor’s accounting system is adequate for determining costs applicable to the contract; and

· Appropriate government surveillance during contract performance will provide reason- able assurance that efficient methods and effective cost controls are used.

A Cost Reimbursement Contract requires both a properly functioning Cost Accounting System to measure the costs incurred; and an Estimating System to realistically predict anticipated costs for the purpose of obligating funds and establishing a cost ceiling. The Contractor’s Cost Estimating System and Cost Accounting System must be compatible.