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1 Third level

2 Click Price to and edit Master Cost title style Analysis: Document your Contract Files and Impress Click to edit Auditors Master text styles Breakout Third Session level #D14 Jo Cunningham Distinguished Member Laboratory Staff, Sandia National Laboratories Date: July 28, 2015 Time: 11:15am - 12:30pm 1

3 Initial Steps If you do good cost and price analysis, documentation should be easy. Third level If you do not do good cost and price analysis, documentation will be difficult. 2

4 Preferred to Cost Analysis when feasible. Third level Price Analysis 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

5 Price Analysis Preferred to Cost Analysis (continued) New Third product level with no prior purchase history: Fourth Based level on established technology» Fifth previously level sold/bought? Discuss similarities, complexity contributing to price difference 4

6 Cost Analysis: Points that Must be Addressed Labor Click Categories, to edit Master Labor text styles Mix, and Labor Hours Direct Third Labor level Rates Indirect Labor Rates Fully Burdened Labor Rates (DL, OH, G&A, Profit/Fee) Direct Costs: Material, Travel, etc. Indirect Rates: G & A, etc. 5

7 Cost Analysis: Points that Must be Addressed Profit: Second Weighted level Guidelines and Comparisons Third level Desirable:» Fifth Document level Price Analysis after evaluation of costs Incorporate results of Audit Report (when audit was performed) 6

8 Labor mix, Rates and number of hours. Number of hours would not be Third level applicable to a T & M or LH contract. Labor What do you need to address in labor? Example.The contractor quoted labor costs of $55,697 which the engineer found as reasonable.. What is lacking from this statement? 7

9 Use published GSA schedules, Salary.com, data bases and other guides such as Third level RobertHalfTechnology.com that provide a nation-wide salary guide for all skill sets. Labor 1. How are you going to document that the rates are reasonable? 2. How are you going to document that the hours are reasonable? Use engineers opinions, experience with other contracts, independent estimates. 8

10 Use Third comparisons level with rates for similar Labor 3. How are you going to document that fully burdened (loaded) rates are reasonable? qualifications and skills on similar contracts. 9

11 Labor If you compare loaded rates on similar contracts, what assumptions Click do you to have edit Master to make? text styles 1. Actual rates that a person is paid is controlled Third level 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? That the labor categories are comparable. 10

12 Click address? to edit Master text styles Labor What other issues do you need to 1. Labor Third mix: level Is the labor is direct, or is some of Fourth the level labor is to be treated as indirect? 2. The basis of the engineers estimate. - Historical data - Similar program/project - Vendor quotes 11

13 Materials and Subcontracts What do you need to document? 1. The Second estimate level is sufficient to allow adequate Third level analysis, cost, amounts and necessity. 2. What are your sources of information? Engineers opinions, market prices, similar contracts, difficulty and complexity of the effort. 12

14 Materials and Subcontracts 3. What issues should you consider? Process contractor used to establish reasonability of its proposed prices: Third level Decrements Once the contract is placed, the contractor may negotiate lower price with subs» Fifth and level vendors. Defective pricing issues may arise. Applies to fixed price contracts & potentially to T & M and Labor Hour contracts. Scrap rates Contract type of subcontracts If the material is a direct or indirect cost What would examples be of an indirect material cost? 13

15 Indirect Costs: Overhead and G&A Most common situation.dcaa may provide a verification of rates. Third level 1. What should you put in your documentation? The date of the verification of rates, what agency verified the rates, the dates of effectivity of the rates, and the name of the person providing the information. 14

16 Indirect Costs: Overhead and G&A 2. What do you do if the rates that are verified are not the same as those Click that are to edit proposed? Master text styles If verified rates are lower, ACCEPT them! Third level Buyer may» Fifth need level to negotiate rates if there are significant differences, and document reasons for final settled rates. In some cases, if rates are yet to be determined, buyer may want to put in a reopener clause with a rate cap (in a FFP contract), should the rates have significant change. 15

17 Indirect Costs: Overhead and G&A 3. What do you do if your company or Click the Government to edit Master has text not styles established Second level the rates? Third level 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

18 Profit or Fee What should you address in your documentation 3.. if you do not use weighted guidelines? Contractor effort (labor, materials, etc), complexity Third level of the work, and resources required Fourth by the level 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 17

19 Profit or Fee What should you address in your documentation Click to edit if Master you do text not use styles weighted guidelines? (Continued) Independent Third level development by Contractor of specialized Fourth processes, level 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. 18

20 Profit or Fee If you choose to use weighted guidelines, what is the basis of your analysis? Weights are assigned to the following factors: Third level - Contractor Fourth effort: level 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) 19

21 Contract Modifications Performing cost and price justification for Click a contract to edit mod: Master text styles What Second are the level issues you need to consider? Third level Does proposed» Fifth contract level cost/price represent the true cost of modification; any Contractor attempt 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 modification are often determined by cumulative value of work added and/or deleted. 20

22 Contract Modifications Performing cost and price justification for a contract revision: What are the issues you need Second to consider? level Third level 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 non-recurring costs such as tooling, design, and development costs? 21

23 Firm Fixed Price Contract Modifications Issues you must address: Adding Scope - Is there an overlap? Is the Second contractor level trying to charge us again for work completed Third level price contracts cannot be issued. Modifications for overruns on fixed 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. 22

24 T&M and LH Contract Modifications Issues you must address: Option years and Rate Change Requests: Direct Labor Rate changes Indirect Rate changes Third level Audit Fourth contractor s level proposed revised rates? Consider» Fifth cost level 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? 23

25 Cost-type Contract Modifications Issues you must address: Costs incurred to date (existing scope) Estimated Second level Costs to Complete (existing scope) Third level Estimated Fourth Costs level for New Scope plus Fee for New Scope Is this modification for an overrun on a Cost-Plus-Fixed-Fee contract? Identify the reason for an overrun. Key Words to Remember: Fee-bearing, Nonfee-bearing, Scope Creep, Scope Growth, Cost Overrun 24

26 Cost-type Contract Modifications Issues you must address, continued : If the overrun does not represent added work, Second additional level fee shall not be added. Address Third Contractor s level Quote(s), Buyer s Position, Fourth Negotiated level 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, Nonfee-bearing, Scope Creep, Scope Growth, Cost Overrun 25

27 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 Third data are level factual, not judgmental; and are verifiable. While they do not indicate the accuracy of the prospective contractor's Fourth judgment level about estimated future costs or projections, they» Fifth do include level 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) Nonrecurring costs; (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) Unitcost 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. 26

28 Cost & Pricing Data Is Required When: Any contract which exceeds a value Click of $700,000, to edit Master including text priced styles options, where Second cost level analysis is used to justify price, Third rate, level or estimated cost reasonableness, and no exception applies,» and Fifth level Any modification to a contract requiring cost or pricing data which involves a price adjustment in excess of $700,

29 What You Must Document: Whenever Cost or Pricing Data is Click to edit Master text styles required to be submitted, the buyer shall Second require level the Contractor to submit Third a level 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. 28

30 What Must Be Documented: Click The certificate to edit Master must appropriately text styles identify the cost or pricing data, which is Second certified level as being accurate, complete, and current. Third level The date» as Fifth of level 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 29

31 What Must Be Documented: The "Date of Execution" should be Click to edit Master text styles as close as practicable to the date when Second price level negotiations were concluded Third level and the contract price agreed Fourth upon. level This date may be different» from Fifth level 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 30

32 Documentation Examples The following examples reflect some of the methodologies that have Second worked level well. Third level These examples may not be for the same commodities for which your organization contracts, but the basic concepts are applicable. 31

33 Facts lead to sound opinions Second Avoid specifications level which can result in later Third audit level findings. Summary Important - remember in documentation: Remember points that must be addressed: Price Analyses: Published price lists, valid comparisons Cost Analyses: Labor, Materials, Subcontracts, ODCs, OH, and Profit/Fee Contract Modifications Pitfalls: Scope Creep 32

34 Practical Second methods level and examples are on the website. Third level Summary Cost and Pricing Data Requirements 33

35 Third level Questions? 34

36 Click Contact to edit Information Master title style Fellow, CFCM, C.P.M. Jo Cunningham Third level