National Contract Management Association of Boston 58th Annual March Workshop

Transcription

1 National Contract Management Association of Boston 58th Annual March Workshop Pricing and estimating March 13, 2019

2 Introductions Overview and background of the pricing and estimating process Certified cost or pricing data Basis of estimates Cost elements Direct costs: labor, material and other direct costs Profit and fee Indirect rates Additional requirements related to subcontract costs Commercial item determination final ruling Industry practices and trends Additional resources Questions Appendices Page 2

3 Overview and background of the pricing and estimating process Page 3

4 Government pricing policy Government shall purchase supplies and services from responsible sources at fair and reasonable prices. Government should only obtain the type and quantity of data necessary to establish a fair and reasonable price, but not more data than is necessary. Certified cost or pricing data (CCoPD) or other than CCoPD as appropriate CCoPD includes current, accurate and complete support for each cost element (e.g., material, labor, overhead) of a proposal Contracting Officers (COs) will utilize factors such as competition, cost analysis, price analysis and commercial item determinations to determine fair and reasonable prices. Page 4

5 DFARS requirements on contractors Just as the Government will perform cost and price analyses on proposals submitted by contractors, contractors must perform cost and price analyses on costs submitted by suppliers and subcontractors. Defense Federal Acquisition Regulation Supplement (DFARS) estimating system requirements (see Appendix 1): Seventeen criteria that contractors are required to achieve, including, but not limited to, adequate training for estimating individual, appropriate policies and procedures, adequate documentation to support proposals, management review and oversight of process, and internal reviews and audits Criteria related to cost/price analysis: No. 11: Integrate information available from other management systems Purchasing system for supplier/subcontractor support of fair and reasonable price paid by the contractor Accounting system for historical prices and rates No. 15: Provide procedures that ensure subcontract prices are reasonable based on a documented review and analysis provided with the prime proposal, when practicable No. 16: Provide estimating and budgeting practices that consistently generate sound proposals that are compliant with the provisions of the solicitation and are adequate to serve as a basis to reach a fair and reasonable price Page 5

6 Certified cost or pricing data Page 6

7 Requirements for certified cost or pricing data (CCoPD) Certified cost or pricing data means cost or pricing data (CoPD) that is required to be submitted in accordance with truthful cost or pricing data (TCoPD) formerly the Truth in Negotiations Act (TINA) Applicable to a negotiated contract or subcontract exceeding $750,000 (October 1, 2015) The 2018 National Defense Authorization Act increased the threshold to $2m for contracts awarded after June 30, 2018 Applicable to negotiated modification of a contract where aggregate pricing action is above the threshold even if the original contract was competed When CCoPD is required, offeror must submit a certificate of current cost or pricing data Reminder: Applies both to contracts submitted to United States Government (USG) and to subcontractors submissions to prime contractors Page 7

8 Exceptions to the requirement for certified cost or pricing data FAR Prohibition on Obtaining Certified Cost or Pricing Data Adequate price competition Prices set by law or regulation Commercial item acquisition per definition at FAR Written waiver has been granted by Head of Contracting Activity When modifying a contract for a commercial item FAR Other Circumstances Where Certified Cost or Pricing Data Are Not Required Other circumstances not requiring certified cost or pricing data: The exercise of an option at the price established at contract award or initial negotiation does not require submission of certified cost or pricing data Proposals used solely for overrun funding or interim billing price adjustments Page 8

9 Data other than certified cost or pricing data Data other than certified cost or pricing data means pricing or cost data and judgmental information necessary for the contracting officer to determine a fair and reasonable price or to determine cost realism It can be data that is identical to types of data such as CCoPD but without the certification May include the following: Sales data Information required to explain estimating process Judgmental factors applied and mathematical or other methods employed to make price estimates Or Nature and amount of any contingencies included in a proposal Page 9

10 Proposal process vulnerability Contractor submitting proposals to USG Request for proposal received Proposal submitted Fact finding Agreement on pricing Contract signed Work begins Risk is a function of the estimating process High-risk area Low-risk area Page 10

11 Submitting a proposal to the Government On March 28, 2013, the Department of Defense (DoD) updated the DFARS at to incorporate a requirement for the Contracting Officer to include a new solicitation provision, Proposal Adequacy Checklist: Included when the solicitation requires the submission of CCoPD to facilitate submission of a thorough, accurate and complete proposal The checklist requirements coincide with FAR Table 15-2 Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data Are Required The Contracting Officer has the discretion of whether to include the DFARS Proposal Adequacy Checklist clause in Section L Instructions, conditions and notices to offerors or respondents of the solicitation. The checklist applies to only the cost proposal, not the entire proposal submission. This is a tool to help offerors provide adequate, compliant proposals. Page 11

12 Proposal adequacy checklist categories Checklist categories: General instructions (Items 1 13) Cost elements (Items 14 29) Materials and services Subcontracts (purchased materials or services) Exceptions to certified cost or price data Interorganizational transfers Direct labor Indirect costs Other costs Formats for submission of line item summaries (Items 30 32) Other (Items 33 36) Page 12

13 DFARS proposal checklist vs. FAR Table 15-2 DFARS checklist FAR Table 15-2 Items 1 14 General instructions Items A H Items Cost elements Items A H Items Formats for submission of line item summaries Items A H Items 1 16 Other Items A H Page 13

14 Basis of estimates Page 14

15 Basis of estimates Basis of estimates (BOE) defined: explanation and justification of the estimates to perform the service and/or do the work Common elements of a BOE: Header identifying the task identification and work breakdown structure and period of performance Description of tasks being performed and services/products delivered Estimating methods, rationale and calculation used for each element of cost proposed Identification of historical data used, including source and nature Explanation and detail of labor resources estimated and evidence of labor time phasing Details of any adjustments made (i.e., technical complexity) Judgment-based estimating methods are generally the least preferred while fact-based estimating methods are the most preferred; follow-on projections based on actuals from prior contracts/lots have the highest credibility At a minimum, a reviewer should be able to understand how the estimate was reached Standard BOE templates and required identification of who prepared the estimate and who reviewed/approved the estimate are common industry practices Page 15

16 Basis of estimates hierarchy Historical data Actuals Costs and tasks Most preferable Firm quotation Level of effort Estimates Judgments Least preferable Page 16

17 Cost elements Page 17

18 Direct labor Page 18

19 Labor estimating methods History Analogy Complexity factor Cost estimating relationship (CER) Hours/task Improvement/learning curve Level of effort Parametric Direct estimate/judgment Page 19

20 Regulatory definition FAR Part 15 Common categories include the following Manufacturing or shop labor Engineering labor Support Trade or craft labor (construction contracts) Common method Actual costs of known personnel Labor rates for homogeneous categories of labor (Engineer I, II, III or Design Engineer, Mechanical Engineer, etc.) Labor standards with efficiency adjustments Parametric or rough yardstick estimates (e.g., hours/dollars per some unit of measure) Quantitative methods (i.e., improvement curves) Level of effort Hours, task or unit Judgmental or engineering estimates Page 20

21 Estimating labor Hours and rates Considerations Actual individuals vs. estimated categories Trends in labor rates Salary increase dates Union wage agreements Personnel actions hiring and firing Changes in labor force mix Multi-shift, holiday and overtime premiums Efficiencies Learning curves Based on the proven theory that a task is performed more efficiently after it is learned Assumes continual performance by the same personnel Page 21

22 Direct material Page 22

23 Material estimating methods Catalog with quantity or preferred customer discounts Competition CER Cost/price analysis Direct estimate/judgment Interdivision work authorization Long-term agreement (LTA) Parametric Price negotiation memorandum/negotiation summary Purchase order (PO) history adjusted for quantity and escalation Similar-to part number history with adjustments if available Subcontractor/supplier proposal with an anticipated negotiation decrement Page 23

24 Estimating material costs Sources of information: Cost records for similar contracts Priced bill of material (BoM) updated for current supplier quotes Cost data from a prototype Prior cost estimates New firm supplier quotes Experience factors and ratios (parametric factors) Operations data Engineering drawings and associated estimates PO history adjusted for quantity and escalation Page 24

25 Estimating material costs Need to consider the following: Are supplier quotes and PO prices stale? Anticipated material quantities, minimum buy quantities Profit and cost pyramiding (i.e., intercompany sales) Supplier refunds, volume rebates or discounts Order consolidation (volume pricing) Make-or-buy decisions Subcontractor estimates Government-furnished material Residual inventory Scrap, spoilage, rework Panstock, usage, low-value hardware, just-in-time (JIT) material or other material factors Page 25

26 Other direct costs Page 26

27 Other direct costs (ODCs) ODCs include travel, tooling, nonrecurring engineering (NRE), freight, overtime premium, other ODCs, etc. Actual analysis techniques used may be a function of risk and materiality. Generally there are four method for ODC: $/hour, $/month, $/unit or discrete. If a company has numerous ODC elements, more than one of these methods can be used. Example: Travel Travel should have a BOE that states the requirement/necessity for the travel, which may be assessed by technical evaluator. Costs need to be supported by logistical information such as number of days, number of attendees, Government lodging, and meal and incidental expenses (M&IE) per diem rates and travel destination. An alternate method to estimate travel is to use a CER to labor hours or dollars. For large programs, there could be hundreds of trips; estimating travel based on every trip can be cumbersome. Page 27

28 Profit and fee Page 28

29 Profit and fee Profit/fee is generally estimated using Weighted Guideline Method (WGM) (DFARS ). The other option is to use modified WGM or an alternate structured approach. The WGM focus is on four profit factors: Performance risk technical and management/cost control Contract type risk Facilities capital employed Cost efficiency DFARS has ranges and criteria to consider for the selection of the value used for performance risk, contract risk and cost efficiency (below normal, normal and above normal). A sample of the WGM form is on the next chart. Page 29

30 Profit and fee RECORD OF WEIGHTED GUIDELINES APPLICATION REPORT CONTROL SYMBOL 1. REPORT NO. 2. BASIC PROCUREMENT INSTRUMENT IDENTIFICATION NO. 3. SPIIN 4. DATE OF ACTION complete on printable a. PURCHASING OFFICE b. FY c. TYPE PROC INST CODE d. PRISN a. YEAR b. MONTH complete on printable form tab complete on printable form tab complete on complete on printable complete on form tab printable form tab printable 5. CONTRACTING OFFICE CODE complete on printable form tab ITEM COST CATEGORY OBJECTIVE 6. NAME OF CONTRACTOR 13. MATERIAL $ 187,200 complete on printable form tab 14. SUBCONTRACTS $ 4,500, DUNS NUMBER 8. FEDERAL SUPPLY CODE 15. DIRECT LABOR $ 956,777 complete on printable form tab complete on printable form tab 16. INDIRECT EXPENSES $ 2,013, DOD CLAIMANT PROGRAM 10. CONTRACT TYPE CODE 17. OTHER DIRECT CHARGES $ 54,622 complete on printable form tab complete on printable form tab 18. SUBTOTAL COSTS (13 thru 17) $ 7,712, TYPE EFFORT complete 12. USE CODE 19. GENERAL AND ADMINISTRATIVE $ 1,029,435 on printable complete on printable form tab 20. TOTAL COSTS ( ) $ 8,741,691 WEIGHTED GUIDELINES PROFIT FACTORS ITEM CONTRACTOR RISK FACTORS ASSIGNED WEIGHTING ASSIGNED VALUE BASE (Item 20) PROFIT OBJECTIVE 21. TECHNICAL 60% 5.00% 22. MANAGEMENT/COST CONTROL 40% 5.00% 23. PERFORMANCE RISK (COMPOSITE) 5.00% $ 8,741,691 $ 437, CONTRACT TYPE RISK 3.00% $ 8,741,691 $ 262, WORKING CAPITAL COSTS FINANCED LENGTH FACTOR INTEREST RATE $ 1,748, % $ 45,238 CONTRACTOR FACILITIES CAPITAL FINANCED AMOUNT EMPLOYED 26. LAND 27. BUILDINGS 28. EQUIPMENT 17.5% $ - ASSIGNED VALUE BASE (Item 20) 29. COST EFFICIENCY FACTOR 2.00% $ 8,741,691 $ 174, TOTAL PROFIT OBJECTIVE $ 919,407 NEGOTIATED SUMMARY PROPOSED OBJECTIVE NEGOTIATED 31. TOTAL COSTS $ 233 $ 8,741, FACILITIES CAPITAL COST OF MONEY (DD Form 1861) 33. PROFIT $ 49 $ 919, TOTAL PRICE (Line ) $ 282 $ 9,661,098 $ MARKUP RATE (Line divided by 31) % % 0.000% CONTRACTING OFFICER APPROVAL 36.TYPED/PRINTED NAME OF CONTRACT-ING OFFICER (Last, First, Middle Initial) 37.SIGNATURE OF CONTRACTING OFFICER 38. TELEPHONE NO. 39.DATE SUBMITTED (YYYYMMDD) complete on printable form tab complete on printable complete on printable OPTIONAL USE Page 30

31 Indirect rates Page 31

32 Indirect rates Rates might include labor overhead, manufacturing overhead, engineering overhead, material burden, general and administrative (G&A), fringe, cost of money (COM), etc. Consider the following when including indirect rates in proposals: Comparison to Forward Pricing Rate Agreement (FPRA) and/or Forward Pricing Rate Proposal (FPRP) Use of rate trends and final indirect rates agreed to with the Government Detailed analysis of indirect pool accounts, data and calculations, including comparison to prior years Scrubbing process to remove unallowable expenses Industry trends and experience Budgetary data for current year and out years Sales forecasts for future and correlation to estimated/budgeted labor or material bases for those years Page 32

33 Additional requirements related to subcontract costs Page 33

34 Additional requirements related to subcontract costs Does the proposal identify all subcontractors? Cost and price analysis The Defense Contract Audit Agency (DCAA) treats inadequate or incomplete cost or price analysis as a material FAR (b) noncompliance. Amounts associated with incomplete or inadequate cost or price analysis are no longer classified as unsupported. The DCAA s audit position is based on alternative procedures (i.e., decrements based on prior PO history, assist audits). Commercial item determinations Page 34

35 Regulatory definition FAR Part 15 Cost analysis FAR (c)(1) Cost analysis is the review and evaluation of any separate cost elements and profit or fee in an offeror s or contractor s proposal, as needed to determine a fair and reasonable price or to determine cost realism, and 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. Price analysis FAR Price means cost plus any fee or profit applicable to the contract type. FAR (b)(1) Price analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit. Page 35

36 Cost vs. price analysis Each cost element Direct labor dollars ODC Direct labor hours Indirect rates Profit Total price Direct rates Direct material Fee Cost analysis vs. Price analysis Page 36

37 Certified cost or pricing data Certified cost or pricing data refers to any cost or pricing data that is required to be certified pursuant to the Truthful Cost or Pricing Data statute. Certification states that to the best of the certifier s knowledge and belief, the CoPD is accurate, complete and current as of the date of certification. Cost analysis Price analysis When CCoPD is required When CCoPD (i.e., a cost analysis) is required When CCoPD is not required per a FAR exemption and proposed costs exceed $750,000 October 1, 2015/$2M June 30, 2018 Page 37

38 Cost analysis techniques When evaluating CCoPD: Reasonableness of proposed costs Projection of trends Reasonableness of parametric models Application of audited or negotiated rates Includes all cost elements: Labor Material ODCs Direct and Indirect rates Evaluate profit using weighted guidelines method (DFARS ) Page 38

39 Cost analysis Assist audits Situations where a subcontractor declines access to cost information to a prime, citing competitive or proprietary information Similar to a contracting officer being able to request assistance in the event the CCoPD is not sufficient, a prime contractor may also request assistance: FAR Data to support proposal analysis: (a) Field pricing assistance (1) The contracting officer should request field pricing assistance when the information available at the buying activity is inadequate to determine a fair and reasonable price. The contracting officer shall tailor requests to reflect the minimum essential supplementary information needed to conduct a technical or cost or pricing analysis. (2) The contracting officer shall tailor the type of information and level of detail requested in accordance with the specialized resources available at the buying activity and the magnitude and complexity of the required analysis. Field pricing assistance is generally available to provide: (i) Technical, audit and special reports associated with the cost elements of a proposal, including subcontracts (ii) Information on related pricing practices and history (iii) Information to help COs determine commerciality and a fair and reasonable price Page 39

40 Challenges of cost analysis Denial of access by supplier Government assist audits denied or slow Inadequate or unavailable supplier data Not analyzing or addressing all cost elements Relying on high-level analysis (comparable to price analysis) Cost elements percentage of total cost Lack of technical resources Technical resources lack of documentation or the training of what is expected in a technical evaluation Procurement file organization Ongoing monitoring and training not producing improvements Options and quantity differences Cost or price analyses are key elements is passing a CPSR Page 40

41 Price analysis Price analysis is the process of examining and evaluating a prospective price without evaluating the separate cost elements and profit. Price analysis is used to determine the reasonableness of price, but the process can be subjective: for a given set of information, different buyers might reach different conclusions about price reasonableness. However, the price analysis should be written in a manner that allows an independent buyer to understand the conclusions reached and duplicate the conclusions using the same estimating methodologies and relying on the same source documents. Price analysis sometimes cannot be performed prior to awarding the contract. Page 41

42 Price analysis techniques Compare proposed prices for each offer received Competition determines reasonableness Compare with previous proposed prices and contract prices with current proposed price for the same or similar items, adjusted for quantity and escalation Compute parametric estimating methods For example cost/lb. or dollars/horsepower Compare with competitive published price lists, published market prices of commodities, similar indexes and discount or rebate commitments Compare with independent Government/company cost estimate Review analysis of pricing information (other than CoPD) provided by the offeror Compare proposed prices with prices obtained through market research for the same or similar items Page 42

43 Price analysis Published data Manufacturer and dealer catalogs Product brochures and promotional material Trade journals Government or independent testing Source identification publications Federal supply schedules Government economic data Nongovernment economic data Page 43

44 Price analysis Other data sources Other buyers and industry or commodity experts Prospective offerors: pre-solicitation conferences, draft request for proposal, one-on-ones Trade and professional associations Chamber of Commerce/Better Business Bureau State and local watchdog agencies Internet sources Page 44

45 Challenges of price analysis Item or service is not listed in a catalog, federal supply schedule, online, etc. Item or service has not been previously sold in comparable quantity, variant, locations, etc. Seller did not identify price impact of selling item or service across multiple contracts or programs Page 45

46 Commercial item determination final ruling Page 46

47 Commercial items As previously stated, commerciality is an exception to CCoPD requirements. On January 31, 2018, the DoD issued a final rule amending the DFARS to implement sections of the National Defense Authorization Acts for 2018 relating to commercial item acquisitions. This rule provides guidance to COs for making price reasonableness determinations, promotes consistency in making CIDs and expands opportunities for nontraditional defense contractors to do business with the DoD. Page 47

48 DFARS Case 2016-D006 Procurement of commercial items The final ruling promotes consistency in making CIDs. The DoD has establish a cadre of experts within the Defense Contract Management Agency (DCMA) to provide advice to Cos. The DCMA Commercial Item Group (CIG) maintains an online resource for commercial products and services. DCMA is also facilitating collaboration with contractors through commercial item memorandums of agreement. Page 48

49 DFARS Case 2016-D006 Procurement of commercial items The language at DFARS (a)(ii) has been revised to state that a CO may presume that a prior CID, or a determination that overturned a prior CID, made by a military department, a defense agency or another component of DoD shall serve as a determination for subsequent procurements of such item. The language at DFARS (b) and (b)(ii) was amended to add the word and to allow COs to consider recent purchase prices paid by both the Government and commercial customers for the same or similar commercial items. Page 49

50 Industry practices and trends Page 50

51 Industry practices Maximizing competition Proposal cost structure in line with actual structure Contemplating your counterpart s perspective Can a user pick up the proposal and understand how it was compiled? Are you prepared to provide supporting documentation for the rates, material and labor estimates? Creating effective and competitive organizational and rate structures Effective and efficient/timely sweep process Training for buyers, cost analysts and technical personnel Page 51

52 Industry trends Increased focus on commerciality Use of specialists or third parties for cost analyses Organization of procurement departments Interactive training and workshops Procurement quality metrics Self-assessments Use of templates and guides Page 52

53 Additional resources Page 53

54 Additional resources Contract Pricing Proposal Adequacy Checklist DCAA Information for Contractors n%20on%20the%20government%20auditing%20process%20and%20specific%20infor mation%20for%20small%20business%20contractors DCAA Estimating System Audit Program DoD Guidebooks for Acquiring Commercial Items DoD Independent Government Cost Estimate (IGCE) Handbook for Service Acquisition DCMA CIG Commercial Database Page 54

55 Questions Page 55

56 Presenters From Ernst & Young LLP s Government Contract Services practice Jack Gay Executive Contractor jack.gay@ey.com Mobile: Timothy Manning Sr. Manager tim.manning@ey.com Mobile: Christina Graves Senior christina.graves@ey.com Mobile: Page 56

57 Appendix 1 Page 57

58 DFARS background Final rule DoD issued a final rule effective February 24, 2012, which mandated withholding a percentage of payments when a contractor s business system has one or more significant deficiencies. Business system clause Contractor Business Systems Applicability per DFARS Use in solicitations and contracts (other than in contracts with educational institutions, federally funded research and development centers or university associated research centers operated by educational institutions) when: The resulting contract will be a covered contract as defined in (a) Covered by cost accounting standards (CAS) The solicitation or contract includes any of the following clauses: (1) , Cost Estimating System Requirements (2) , Earned Value Management System (3) , Material Management and Accounting System (4) , Accounting System Administration (5) , Contractor Purchasing System Administration (6) , Contractor Property Management System Administration Page 58

59 DFARS business system rule Estimating system Six business systems under the rule 1. Estimating system 4. Accounting system 2. Earned value management system 5. Material management and accounting system 3. Purchasing system 6. Property management system Estimating system is a term used to describe a contractor s policies, procedures and practices for budgeting and planning controls and generating estimates of costs and other data included in proposals: Allows a contractor to estimate costs for bids and proposals (B&P) Allows contractors to provide a better estimate to complete (ETC) Page 59

60 Regulations, guidance and applicability Business system Cost estimating system Implementing guidance DFARS (PGI) FAR/DFARS contract clause guidance Threshold level and attributes Exemptions Cognizant audit/review authority Frequency DFARS Businesses in their fiscal year (FY) preceding award received DoD prime contracts or subcontracts of at least $50m for which CCoPD were required or contractors having awards of at least $10m (but less than $50m) where CCoPD were required and the Procuring Contracting Officer (PCO) and Administrative Contracting Officer (ACO) determine audit to be in Government s best interest (e.g., significant estimating problems believed to exist) Sales of commercial items; competitively awarded fixed-price contracts; small businesses, educational institutions or other nonprofit organizations DCMA/DCAA/CO Every three years Page 60

61 DFARS cost estimating system criteria (DFARS ) 1. Establish clear responsibility for preparation, review and approval of cost estimates and budgets 2. Provide a written description of the organization and duties of the personnel responsible for preparing, reviewing and approving cost estimates and budgets 3. Ensure that relevant personnel have sufficient training, experience and guidance to perform estimating and budgeting tasks in accordance with the Contractor s established procedures 4. Identify and document the sources of data and the estimating methods and rationale used in developing cost estimates and budgets 5. Provide for adequate supervision throughout the estimating and budgeting process 6. Provide for consistent application of estimating and budgeting techniques 7. Provide for detection and timely correction of errors 8. Protect against cost duplication and omissions 9. Provide for the use of historical experience, including historical vendor pricing information, where appropriate 10. Require use of appropriate analytical methods Page 61

62 DFARS cost estimating system criteria (DFARS ) 11. Integrate information available from other management systems 12. Require management review, including verification of compliance with the company s estimating and budgeting policies, procedures and practices 13. Provide for internal review of, and accountability for, the acceptability of the estimating system, including the budgetary data supporting indirect cost estimates and comparisons of projected results to actual results, and an analysis of any differences 14. Provide procedures to update cost estimates and notify the CO in a timely manner throughout the negotiation process 15. Provide procedures that ensure subcontract prices are reasonable based on a documented review and analysis provided with the prime proposal, when practicable 16. Provide estimating and budgeting practices that consistently generate sound proposals that are compliant with the provisions of the solicitation and are adequate to serve as a basis to reach a fair and reasonable price 17. Have an adequate system description, including policies, procedures, estimating and budgeting practices, that comply with the FAR and DFARS Page 62

63 Appendix 2 Proposal adequacy checklist Page 63

64 Purpose of the proposal adequacy checklist On March 28, 2013, the DoD updated the DFARS at to incorporate a requirement for the CO to include a new solicitation provision, , Proposal Adequacy Checklist, in certain situations. The purpose is to facilitate submission by offerors of thorough, accurate and complete proposals. The CO has the discretion of whether to include the DFARS Proposal Adequacy Checklist clause in Section L of the solicitation when proposals require CCoPD. If the checklist clause is included, contractors are required to prepare and submit the checklist, although use of the checklist is not mandatory when the clause is not included in the solicitations. Page 64

65 Purpose of the proposal adequacy checklist The checklist applies to only the cost proposal, not the entire proposal submission. Based on historical data for the period of FY2008 FY2010, there was an average of 905 proposal actions per year where the proposal adequacy checklist could be utilized. On average, 421 of those were with small business concerns. The checklist will be used by COs when reviewing proposals. Contractors complete this checklist along with their proposals, ultimately streamlining the DoD evaluation process by providing references, details and location of specific information to facilitate the proposal review by agency personnel. Page 65

66 DoD intentions of proposal adequacy checklist Does not add new requirements; compiles and organizes existing requirements Not intended to be punitive, but rather a tool to help offerors provide adequate, compliant proposals Increases the efficiency and standardization of the proposal evaluation process for agency personnel Streamlines proposal preparation process for offerors Results in cost and time savings by improving initial proposal submissions Page 66

67 Checklist steps for contractors The offeror is to provide the location of each of the 36 items in the proposal. If an item in the checklist is not included in the proposal, the offeror is required to provide an explanation for why it is not included. Offerors are not required to have their prospective subcontractors use the same or similar checklist, but may choose to do so if appropriate. Page 67

68 Proposal adequacy checklist categories Checklist categories: General instructions (Items 1 13) Cost elements (Items 14 29) Materials and services Subcontracts (purchased materials or services) Exceptions to certified cost or price data Interorganizational transfers Direct labor Indirect costs Other costs Formats for submission of line item summaries (Items 30 32) Other (Items 33 36) Page 68

69 Proposal adequacy checklist General instructions Compliance with FAR , Table 15-2 requirements Item 1 Is Table 15-2 presented? Item 2 Does proposal include Government furnished materials? Item 3 Does proposal identify and explain noncompliances with CAS? Any proposal inconsistencies with Cost Accounting Standards Board Disclosure Statement or established accounting and pricing practices? Item 4 Does proposal disclose known activities that could materially impact the cost? Page 69

70 Proposal adequacy checklist General instructions Item 4 (continued) Compliance with FAR Cost or pricing data identify: Vendor quotations Nonrecurring costs Information on changes in production methods and in production or purchasing volume Data supporting projections of business prospects and objectives and related operations costs Unit-cost trends such as those associated with labor efficiency Make-or-buy decisions Estimated resources to attain business goals Information on management decisions that could have a significant bearing on costs Item 5 Is index of all CCoPD provided included and appropriately referenced? Page 70

71 Proposal adequacy checklist General instructions Item 6 Compliance with FAR Exceptions to CoPD requirements Identification of whether there are any exceptions to submission of CoPD If exceptions identified, supporting documentation included in proposal should be referenced Item 7 FAR , Table 15-2 Does proposal disclose the judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data? Item 8 FAR , Table 15-2 Does the proposal disclose the nature and amount of any contingencies included in the proposed price? Item 9 FAR , Table 15-2 Does the proposal explain the basis of all CERs (labor hours or materials) proposed on other than a discrete basis? Page 71

72 Proposal adequacy checklist General instructions Item 10 FAR , Table 15-2 Summary of total cost by element of cost cross-referenced to supporting CoPD Breakdown for each cost element consistent with your own cost accounting system, by year Item 11 FAR , Table 15-2 Summary of total cost by contract line item (CLIN) or subcontract line item (sub- CLIN), as necessary Summary of total covering all line items for each element of cost cross-referenced to supporting CoPD Item 12 FAR , Table 15-2 Does the proposal identify any incurred costs for work performed prior to submission of proposal? Item 13 FAR , Table 15-2 If there is a Government FPRA, the offeror shall identify submittal If no FPRA, does the proposal include an itemized listing of all indirect rates and factors by year that are utilized in development of the proposal and the basis for those rates and factors? Page 72

73 Proposal adequacy checklist Cost elements materials and services Item 14 FAR , Table 15-2 Does proposal include a consolidated summary of individual material and services, otherwise known as a Consolidated Bill of Material (CBoM) with the basis for pricing, including: Raw materials Parts Components Assemblies Subcontracts and services CBoM must identify at a minimum the item, source, quantity and price Page 73

74 Proposal adequacy checklist Subcontracts Items 15, 16 and 17 FAR Subcontract pricing considerations Is the subcontractor s CCoPD included? Has offeror identified subcontract proposals for which CO will need to request field pricing analysis? (DFARS ) Is there a price/cost analysis establishing the reasonableness of each of the proposed subcontracts included with the proposal? If price/cost analysis not provided, is there a matrix identifying dates for receipt of: Subcontractor proposal Completion of fact finding for purposes of price/cost analysis Submission of the price/cost analysis FAR , Table 15-2 Price/cost analysis of proposed subcontracts Page 74

75 Proposal adequacy checklist Exceptions to cost or pricing data Item 18 FAR and FAR Requirements for cost or pricing data or information other than cost or pricing data or commercial items Is there a prime or subcontract commercial item exemption from CoPD, including basis for the claim Modified commercial item exemption And/or Technical description for commercial items Of a Type or Evolved or Modified Differences between the proposed item and comparison item(s) Items 19 and 20 FAR , Table 15-2 Does proposal support the degree of competition for subcontract/purchase order Source and basis for price reasonableness for subcontracts/purchase orders priced competitively in excess of the certified cost or pricing data threshold Page 75

76 Proposal adequacy checklist Interorganizational transfers Items 21 and 22 FAR , Table 15-2 Does proposal include a complete cost proposal for interorganizational transfers proposed at cost? If interorganizational transfers are proposed at a price, is analysis included that supports the exemption from certified cost or pricing data? Item 22 (continued) FAR (e) Material costs Interorganizational transfers are required to be proposed at cost except when the price is: Established catalog or market price of commercial items sold to the general public Result of adequate price competition Price is not in excess of current sale price to most favored customer Not determined to be unreasonable by the Contracting Officer Page 76

77 Proposal adequacy checklist Direct labor Items 23 and 24 FAR , Table 15-2 Time-phased (i.e., monthly, quarterly) breakdown of labor hours, rates and costs by category If labor is the allocation base for indirect costs, summarized so that the applicable overhead rate can be applied For labor BOEs: labor categories, labor hours and task descriptions Item 25 FAR Service Contract Act (the Act) Compliance with Service Contract Labor Standards; reference where rates in proposal comply with minimum rates specified in the Act Page 77

78 Proposal adequacy checklist Indirect and other costs Items 26 and 27 FAR , Table 15-2 Indirect costs: BoE for indirect costs Other direct costs: Travel cost details Royalties greater than $1,500 Facilities capital cost of money (FCCM) Page 78

79 Proposal adequacy checklist Submission of line item summaries Items 30 and 31 FAR , Table 15-2 Applicable format for cost element breakdowns per FAR 15-2 For modifications or change orders, and cost of work deleted (credits) or added (debits) Price revisions/redeterminations must comply with FAR 15-2.III.C Page 79

80 Proposal adequacy checklist Other Item 33 FAR 16.4 Incentive Contracts Proposed target cost, profit or fee, share ratio, min/max fee, ceiling price Item 34 FAR Fixed Price Contracts Rationale and application of economic price adjustment Item 35 FAR Invitation to Propose Performance-Based Payment Compliance with terms and conditions included in FAR Item 36 FAR /23 Limitations on Pass-Through Charges Excessive pass-through charges identification of subcontract effort greater than 70% of total cost Page 80

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