National Contract Management Association of Boston 58th

National Contract Management Association of Boston 58th Annual March Workshop

Pricing and estimating

March 13, 2019

► 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

► AppendicesNational Contract Management Association of Boston 58th Annual March WorkshopPage 2

Overview and background of the pricing and estimating process

National Contract Management Association of Boston 58th Annual March WorkshopPage 3

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.


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


Certified cost or pricing data


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


Exceptions to the requirement for certified cost or pricing data

FAR 15.403-1 − Prohibition on Obtaining Certified Cost or Pricing Data ► Adequate price competition► Prices set by law or regulation► Commercial item acquisition per definition at FAR 2.101► Written waiver has been granted by Head of Contracting Activity► When modifying a contract for a commercial itemFAR 15.403-2 − 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


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 estimatesOr

► Nature and amount of any contingencies included in a proposal


—

Proposal process vulnerabilityContractor submitting proposals to USG

Request for proposal received

Proposal submitted

Agreement on pricing

Contractsigned

Workbegins

Fact finding

Risk is a function of the estimating

process

High-risk area Low-risk area


Submitting a proposal to the Government

► On March 28, 2013, the Department of Defense (DoD) updated the DFARS at 215.408 to incorporate a requirement for the Contracting Officer to include a new solicitation provision, 252.215-7009 − 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.


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)


DFARS proposal checklist vs. FAR Table 15-2

DFARS checklist FAR Table 15-2

Items 1–14 General instructions Items A–H

Items 14–29 Cost elements Items A–H

Items 30–32 Formats for submission of line item summaries Items A–H

Items 1–16 Other Items A–H


Basis of estimates


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


Basis of estimates hierarchy

Firm quotation

Level of effort

Most preferable


Historical data► Actuals► Costs and tasks

Estimates► Judgments

Least preferable

Cost elements


Direct labor


Labor estimating methods

History

Analogy

Complexity factor

Cost estimating relationship (CER)

Hours/task

Improvement/learning curve

Level of effort

Parametric

Direct estimate/judgment


Regulatory definitionFAR Part 15

►Manufacturing or shop labor►Engineering labor►Support►Trade or craft labor (construction

contracts)

►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

Common categories include the following Common method


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


Direct material


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


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


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


Other direct costs


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.


Profit and fee


Profit and fee

► Profit/fee is generally estimated using Weighted Guideline Method (WGM) (DFARS 215.404-71).

► 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.


Profit and fee

RECORD OF WEIGHTED GUIDELINES APPLICATIONREPORT CONTROL

SYMBOL

1. REPORT NO. 2. BASIC PROCUREMENT INSTRUMENT IDENTIFICATION NO. 3. SPIIN 4. DATE OF ACTIONcomplete on printable

form taba. PURCHASING OFFICE b. FY c. TYPE PROC INST CODE d. PRISN complete on printable

form tab

a. YEAR b. MONTH

complete on printable form tab complete on printable form tab

complete on printable complete on printable

5. CONTRACTING OFFICE CODEITEM COST CATEGORY OBJECTIVEcomplete on printable form tab

6. NAME OF CONTRACTOR 13. MATERIAL $ 187,200 complete on printable form tab 14. SUBCONTRACTS $ 4,500,189

7. DUNS NUMBER 8. FEDERAL SUPPLY CODE 15. DIRECT LABOR $ 956,777 complete on printable form tab complete on printable form tab 16. INDIRECT EXPENSES $ 2,013,468

9. 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) $ 7,712,256

11. TYPE EFFORT completeon printable

12. USE CODE 19. GENERAL AND ADMINISTRATIVE $ 1,029,435 complete on printable form tab 20. TOTAL COSTS (18 + 19) $ 8,741,691

WEIGHTED GUIDELINES PROFIT FACTORSITEM CONTRACTOR RISK FACTORS ASSIGNED WEIGHTING ASSIGNED VALUE BASE (Item 20) PROFIT OBJECTIVE21. TECHNICAL 60% 5.00%22. MANAGEMENT/COST CONTROL 40% 5.00%23. PERFORMANCE RISK (COMPOSITE) 5.00% $ 8,741,691 $ 437,085 24. CONTRACT TYPE RISK 3.00% $ 8,741,691 $ 262,251

25. WORKING CAPITALCOSTS FINANCED LENGTH FACTOR INTEREST RATE

$ 1,748,338 1.15 2.250% $ 45,238 CONTRACTOR FACILITIES CAPITAL FINANCED AMOUNT EMPLOYED

26. LAND27. BUILDINGS28. EQUIPMENT 17.5% $ -

29. COST EFFICIENCY FACTORASSIGNED VALUE BASE (Item 20)

2.00% $ 8,741,691 $ 174,834 30. TOTAL PROFIT OBJECTIVE $ 919,407

NEGOTIATED SUMMARYPROPOSED OBJECTIVE NEGOTIATED

31. TOTAL COSTS $ 233 $ 8,741,691 32. FACILITIES CAPITAL COST OF MONEY (DD Form 1861)33. PROFIT $ 49 $ 919,407 34. TOTAL PRICE (Line 31 + 32 + 33) $ 282 $ 9,661,098 $ -35. MARKUP RATE (Line 32 + 33 divided by 31) 20.863% 10.518% 0.000%

CONTRACTING OFFICER APPROVAL36.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 printableOPTIONAL USE

96. 97. 98. 99.


Indirect rates


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


Additional requirements related to subcontract costs


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 15.404-3(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


Regulatory definitionFAR Part 15

► FAR 15.404-1(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.

► FAR 15.401 “Price” means cost plus any fee or profit applicable to the contract type.

► FAR 15.404-1(b)(1) Price analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit.

Cost analysis Price analysis


Cost vs. price analysis

Total price

Cost analysis vs. Price analysis

Each cost

element

Direct labor

dollars

Direct labor hours

Indirect rates

Direct rates

ODC

Direct material

Profit

Fee


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.

► When CCoPD is required ► When CCoPD (i.e., a cost analysis) isrequired

► When CCoPD is not required per a FAR 15.403-1 exemption and proposed costs exceed $750,000 — October 1, 2015/$2M — June 30, 2018

Cost analysis Price analysis


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 215.404-71)


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 15.404-2 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


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


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.


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


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


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


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


Commercial item determination — final ruling


► 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.

Commercial items


DFARS Case 2016-D006Procurement 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.


► The language at DFARS 212.102(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 212.209(b) and 215.404-1(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.

DFARS Case 2016-D006Procurement of commercial items


Industry practices and trends


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


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


Additional resources


► Contract Pricing Proposal Adequacy Checklist► http://www.dcaa.mil/home/ContractPricingProposal

► DCAA Information for Contractors ► http://www.dcaa.mil/Home/AuditProcessOverview?title=Introductory%20informatio

n%20on%20the%20government%20auditing%20process%20and%20specific%20information%20for%20Small%20Business%20Contractors

► DCAA Estimating System Audit Program► http://www.dcaa.mil/Content/Documents/sap/24010_AP_Estimating_System_Audit

.pdf► DoD Guidebooks for Acquiring Commercial Items

► https://www.acq.osd.mil/dpap/cpic/cp/commercial_item_guide.html► DoD Independent Government Cost Estimate (IGCE) Handbook for Service

Acquisition► https://www.acq.osd.mil/dpap/sa/Policies/docs/DoD_IGCE_for_SA_Handbook.pdf

► DCMA CIG Commercial Database► http://www.dcma.mil/commercial-item-group/

Additional resources


http://www.dcaa.mil/home/ContractPricingProposal

http://www.dcaa.mil/Home/AuditProcessOverview?title=Introductory%20information%20on%20the%20government%20auditing%20process%20and%20specific%20information%20for%20Small%20Business%20Contractors

http://www.dcaa.mil/Content/Documents/sap/24010_AP_Estimating_System_Audit.pdf

https://www.acq.osd.mil/dpap/cpic/cp/commercial_item_guide.html

https://www.acq.osd.mil/dpap/sa/Policies/docs/DoD_IGCE_for_SA_Handbook.pdf

http://www.dcma.mil/commercial-item-group/

Questions


PresentersFrom Ernst & Young LLP’s Government Contract Services practice

Jack GayExecutive ContractorEmail: [email protected]: +1 857 205 5371

Timothy ManningSr. ManagerEmail: [email protected]: +1 443 414 1215

Christina GravesSeniorEmail: [email protected]: +1 972 567 4383


Appendix 1


DFARS backgroundFinal 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 Applicability per DFARS

252.242-7005 Contractor Business Systems

► 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 242.7000(a) — Covered

by cost accounting standards (CAS)

► The solicitation or contract includes any of the following clauses:

(1) 252.215-7002, Cost Estimating System Requirements

(2) 252.234-7002, Earned Value Management System

(3) 252.242-7004, Material Management and Accounting System

(4) 252.242-7006, Accounting System Administration

(5) 252.244-7001, Contractor Purchasing System Administration

(6) 252.245-7003, Contractor Property Management System Administration


DFARS business system ruleEstimating 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)

Six business systems under the rule1. Estimating system 4. Accounting system2. Earned value management

system5. Material management and

accounting system3. Purchasing system 6. Property management system


Regulations, guidance and applicability

Business system Cost estimating systemImplementing guidance DFARS (PGI) 215.407-5

FAR/DFARS contract clause guidance

DFARS 252.215-7002

Threshold level and attributes

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)

Exemptions Sales of commercial items; competitively awarded fixed-price contracts; small businesses, educational institutions or other nonprofit organizations

Cognizant audit/review authority

DCMA/DCAA/CO

Frequency Every three years


DFARS cost estimating system criteria(DFARS 252.215-7002)

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


DFARS cost estimating system criteria(DFARS 252.215-7002)

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


Appendix 2 Proposal adequacy checklist


Purpose of the proposal adequacy checklist

► On March 28, 2013, the DoD updated the DFARS at 215.408 to incorporate a requirement for the CO to include a new solicitation provision, 252.215-7009, 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.


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.


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


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.


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)


Proposal adequacy checklistGeneral instructions

► Compliance with FAR 15.408, 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?



► Item 4 (continued) — Compliance with FAR 2.101 — 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?



► Item 6 — Compliance with FAR 15.403 — 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 15.408, 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 15.408, Table 15-2► Does the proposal disclose the nature and amount of any contingencies included in

the proposed price?

► Item 9 — FAR 15.408, Table 15-2► Does the proposal explain the basis of all CERs (labor hours or materials) proposed

on other than a discrete basis?



► Item 10 — FAR 15.408, 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 15.408, 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 15.408, Table 15-2► Does the proposal identify any incurred costs for work performed prior to

submission of proposal?► Item 13 — FAR 15.408, 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?


Proposal adequacy checklistCost elements — materials and services

► Item 14 — FAR 15.408, 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


Proposal adequacy checklistSubcontracts

► Items 15, 16 and 17 — FAR 15.404-3 — 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 215.404-3)

► 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 15.408, Table 15-2► Price/cost analysis of proposed subcontracts


Proposal adequacy checklistExceptions to cost or pricing data

► Item 18 — FAR 52.215-20 and FAR 2.101 — 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 15.408, 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


Proposal adequacy checklistInterorganizational transfers

► Items 21 and 22 — FAR 15.408, 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 31.205-26(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


Proposal adequacy checklistDirect labor

► Items 23 and 24 — FAR 15.408, 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 22.10 — Service Contract Act (the Act)► Compliance with Service Contract Labor Standards; reference where rates in

proposal comply with minimum rates specified in the Act


Proposal adequacy checklistIndirect and other costs

► Items 26 and 27 — FAR 15.408, 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)


Proposal adequacy checklistSubmission of line item summaries

► Items 30 and 31 — FAR 15.408, 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


Proposal adequacy checklistOther

► Item 33 — FAR 16.4 — Incentive Contracts► Proposed target cost, profit or fee, share ratio, min/max fee, ceiling price

► Item 34 — FAR 16.203-4 — Fixed Price Contracts► Rationale and application of economic price adjustment

► Item 35 — FAR 52.232-28 — Invitation to Propose Performance-Based Payment► Compliance with terms and conditions included in FAR 52.232-28

► Item 36 — FAR 52.215-22/23 — Limitations on Pass-Through Charges► Excessive pass-through charges — identification of subcontract effort greater than

70% of total cost


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