Cost Analysis
Section 2 Defining Costs Performing a Cost Analysis Examples: Proposed Price by Major Cost Element
profit
indirect cost
odc
travel vendor tooling
direct material
raw material purchased parts standard commercial items subcontracts
burden (O/H)
engineering manufacturing field service ILS material handling
the sum of the direct & indirect costs allocable to the contract, incurred or to be incurred, less any allocable credits, plus any applicable cost of money (Cost Accounting Standard 414).
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All costs identified specifically with a contract are direct costs for that contract and shall not be charged to another contract directly, or indirectly. No cost shall be charged to a contract as a direct cost, if other costs incurred for the same purpose in like circumstances have been charged as an indirect cost.
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Produces substantially the same results as treating the cost as a direct cost
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Indirect Costs
Material Handling Fringe Benefits Overhead (or burden) G&A Expenses
What are the solicitation requirements for the contractor and the government?
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Rate
Base
1% 2%
100 101
37 38
5% 1%
193 202
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5 6 11
37 38
5% 1%
193 202
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(5)*(6) (5)+(6) (7)*(8) (7)+(8) (8)*(9) (8)+(9) (11)*(12) (11)+(12) (13)*(14) (13)+(14) 1.00% 2.00% Adj LR FB ST 3.00% O/H ST 4.00% G&A TC 1% Profit LLR
0.04
1.10
0.01
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Material
Direct Material Handling Shrinkage Shop Supplies Scrap 90 5 2 3
100
100
120
320
25 4
30 4
35 4
Total Labor Labor O/H ODC S/T G&A Profit/Fee COM Total Price
360 30 15 725 60 45 15
22 845
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FAR 15.404-4(c)(4):
Profit-Miscellaneous
FAR 15.404-4(c)(5). The contracting officer shall not require any prospective contractor to submit breakouts or supporting rationale for its profit or fee objective but may consider it, if it is submitted voluntarily. FAR 15.404-4(c)(6). If a change or modification calls for essentially the same type and mix of work as the basic contract and is of relatively small dollar value compared to the total contract value, the contracting officer may use the basic contracts profit or fee rate as the prenegotiation objective for that change or modification.
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PGI 215.404-76(2):
PGI 215.404-76(4):
Section 3 Source Selection: - Price Reasonableness - Cost Realism - Completeness Cost Realism Analysis
Cost Realism
Completeness
Are the offerors cost metrics and methods logical and appropriate for the product?
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Probable cost determined by adjusting each offerors costs, and fee when appropriate, to reflect any understatements or overstatements based on the results of the cost realism analysis.
For a CPFF contract, the fee would not be adjusted.
You cannot adjust offered prices as a result of the cost realism analysis. Results of the analysis may be used in performance risk 37 assessments and responsibility determinations.
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Obtaining Information to Establish Price Reasonableness [FAR 15.402(a)] (and Cost Realism)
Order of preference for type of data required and/or requested:
1 No additional information 2 Information other than cost or pricing data 3 (Certified) cost or pricing data
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Both can be the exact same information What is the difference between the two?
For the first, the contractor certifies that the data is current, accurate, and complete. For the second, the contractor does not certify that the data is current, accurate, and complete.
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Certification is expensive for the contractor in terms of time, manpower, and cost to assemble, prepare, check, and present the certified data package. Administrative and legal problems for contractors with certification:
Truth In Negotiations Act (TINA) DCAA post award audits Potential defective pricing
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Audit Tracking
Resolving the issue may involve repayment of disputed amount plus penalty and interest.
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Modifying commercial item contract or subcontract FAR 15.403-2 adds the exercise of options if the price was established at contract award or initial negotiation.
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Information Other than Cost or Pricing Data, with Adequate Price Competition FAR 15.403-3(b) Generally, no additional info is needed, unless the price is unreasonable. If due to unusual circumstances additional info is needed to determine reasonableness, to the maximum extent practicable obtain it from sources other than the offeror. You may request information to determine the cost realism of competing offers or to evaluate competing approaches. 52
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Instructions for Submission of Information Other than Certified Cost or Pricing Data FAR 15.403-5
In the solicitation, you should specify any information other than certified cost or pricing data that is required (Section L). It may be submitted in the offerors own format, unless the contracting officer decides use of a specific format is essential and the format is described in the solicitation. If you didnt specify the info in the solicitation, you can still request and obtain the needed information after initial proposals are submitted.54
Info other than Cost or Pricing Data: Limitations on Commercial Items - FAR 15.403-3(c)
Requests for offerors sales data is limited to data for the same or similar items during a relevant time period. To the maximum extent practicable, limit any request for info to include only info that is in the form regularly maintained by the offeror.
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Things the Solicitation Must Specify on Cost or Pricing Data, or Info Other than Cost or Pricing Data (FAR 15.403-5) - P. 1 of 2 Whether certified cost or pricing data are required That offerors may submit a request for exception, instead of submitting certified data Any information other than certified cost or pricing data that is required The required format for the cost or pricing data or information other than cost or pricing data Necessary pre-award or post-award access to offerors records, if not provided by one of the standard clauses
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Things the Solicitation Must Specify on Cost or Pricing Data, or Info Other than Cost or Pricing Data (FAR 15.403-5) - P. 2 of 2
Information relative to the business, technical, production, or other capabilities and practices of an offeror.
Qualifications/requirements:
Formal proposal request Formal contractor proposal in a structured/auditable format Minimum 30 to 45 day request processing time
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PCO should not request field pricing support for proposals less than $650K; exceptions:
lack of knowledge of particular contractor sensitive conditions/problem areas
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The DCAA PLA or FA can help determine the type of 65 field pricing support/audit services needed.
The end products of the accounting cycle, the financial statements (balance sheet, income statement, etc.) are prepared in accordance with GAAP.
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CAS Coverage
Two types of CAS can be applicable, depending on the dollar value of previous awards and current acquisitions.
Full coverage: comply with all CAS in effect on the contract award date and with any new standards. Modified coverage: requires contractor to comply with four standards
CAS 401, Consistency in estimating, accumulating, & reporting costs. CAS 402, Consistency in allocating costs incurred for the same purpose. CAS 405, Accounting for unallowable costs. CAS 406, Cost accounting period.
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The ACO and cognizant DCAA auditor are responsible for reviewing the contractors Disclosure Statement for adequacy, and for compliance with FAR Part 31 and CAS.
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FAR Appendix B
Contains the actual CAS
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Conclusion
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A disapproved system is a red flag indicating that the firm's estimating system does not consistently provide adequate proposals.
Normally, proposals from a firm with a disapproved system should be subjected to closer scrutiny, particularly closer scrutiny by audit professionals.
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Pre-award accounting system survey performed by DCAA. System should answer affirmative to specific questions:
IAW GAAP? (IAW CAS?) Identify & segregate direct from indirect costs, allocating these costs equitably to specific contracts on a consistent basis? Timekeeping & labor distribution systems appropriately identify direct and indirect labor charges to intermediate & final cost objectives? Accumulates costs integrated with, and reconcilable to, the general ledger? Determine cost of work performed at interim points (at least monthly) because of routine posting to books of account? If required by the contract, identify costs by CLIN/SLIN or by unit?
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