How to Develop a FAR-Compliant Cost or Price Proposal

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1 How to Develop a FAR-Compliant Cost or Price Proposal May 21, 2014 Presenter: Paul H. Calabrese Rubino & Company, CPAs & Consultants Senior Manager Tel:

2 Sources DCAA Manual No , dtd June 26, 2012, Information for Contractors: Enclosure 3 on Price Proposals FAR 15.4 and Table 15-2 Overview Proposal submission requirements DCAA proposal audit Types of data DCAA may request DCAA proposal template Personal insights from experience 4 2

3 Proposal Submission Requirements Things to consider Do a self check using DCAA s proposal checklist If certified cost and pricing data, consider the TINA disclosure implications $700,000 pricing action, contract or mod FAR , Table 15-2 If other than cost or pricing data or certified Follow solicitation requirements under Section L, noting the format in B 6 3

4 Things to consider Adapt your proposal to solicitation format Section F is period of performance Section G is admin/billing requirements such as CLIN/SLIN/ACRN fund tracking Section H limitations on cost Section I lists defective pricing clause Section B is pricing sheet format which may make it non-compliance with your acctg. sys. Propose 3 years together Propose 2 different firm s T&M rates blended together 7 Things to consider If Section B or L proposal formats are not consistent with your cost accounting practices Prepare in RFP format Prepare in Compliant cost accounting format Explain in the first section text of proposal volume the reasons why there are differences and why the need for the compliant version / format / pricing schedules 8 4

5 Things to consider Make sure your pricing team is working together: Contacts (solicitation, terms and conditions) Pricing group get cost inputs from technical Finance (forward pricing-indirect and labor rates, establish procedures, CAS D/S) TINA disclosures, sweeps, table of assumptions relating to each part of the price proposal and each change/update 9 DCAA Audit 5

6 Proposal Audit DCAA reviews the proposal package for adequacy Identify the type of data required Meet with contractor and walk-through data Gain an understanding of the proposal and the supporting documentation Contractor must have a complete file of supporting documentation for each proposal item and assumption 11 Proposal Audit Best Practices Do not wait until the last moment to prepare your proposal, errors may result Bid team prepare a synched timeline Develop a formal estimating system Must be a working process / in operation Must have communication among personnel The gov t provides best practices located in DoD-FAR Estimating System Pre-established processes will help you to avoid mistakes and defective pricing if FFP 12 6

7 Proposal Audit DCAA will determine if the proposal is adequate and if not, and return it to firm FAR , Table 15-2 format Contractor is responsible for adequate supporting data Contractor has burden of proof that the costs are reasonable Fully-supported and well-organized/prepared Basis and rationale of proposed costs as current, accurate, complete-gov t reliance 13 Proposal Audit DCAA requests supporting documentation to support a proposal assertion DCAA will state what specific support is required Each assertion should already be documented and readily available to DCAA 14 7

8 Proposal Audit Support could involve: Access to personnel for explanation Cost records Policies and procedures Management reports s or correspondence 15 Proposal Audit Best Practices Auditors will generally need to obtain supporting documentation directly from the person responsible for the information. Contractor should have 1 liaison w/dcaa All responses to DCAA s inquiries should go through the liaison / compliance officer Liaison could accompany DCAA when they want to talk to contractor personnel 16 8

9 Proposal Audit What happens if contractor does not provide timely response, denial of access to records DCAA will report denial of access to records to the appropriate government officials after 1 wk PCO may cancel proposal audit Contractor may not be awarded contract DCAA wants proposal and supporting data in electronic format 17 Proposal Audit-Exit Conference Exit conference addresses factual aspects of the proposal audit which will be disclosed to contractor Math errors, missing out-year rates, lack of docs Judgmental aspects are not disclosed to contractor as they are given to PCO for negotiation: rationale & items questioned Assumptions that resulted in estimates that DCAA does not agree and questioned cost 18 9

10 Examples of Data that DCAA May Request Info Contractor Should Have Contractor must have available Detailed schedules of labor by CLIN or Lot Detailed projected indirect rates to cover all fiscal periods Basis of escalation Bill of material with price quotes, historical Travel and ODC detail Explanation (text) of each element of cost covering each CLIN and fiscal period 20 10

11 Info Contractor Should Have Schedules should show computations and summary If applicable, such as historical indirect rates, derivation from accounting system Delineate between historical data and the basis of projected cost data Exclude unallowable expenses The method and level of detail for estimating costs should be the same as the contractor accumulates cost 21 Cost Build-up Direct Labor Dollars Time-phased man-loading chart D/L rates x hours by labor classification Direct Labor Hours RFP specified Engineering estimates to accomplish task Proposing individuals Productive man-year of 1,824 hours 96 hrs vacation, 80 hrs holiday, 80 hrs sick 11

12 Cost Build-up Direct Labor Rates Category averages for direct labor personnel Individual rates proposed for key personnel as required in solicitation Direct Labor Classifications Correlate labor categories via labor matrix between cost and technical proposals 23 Cost Build-up Escalation Usage Increases due to inflation Not merit increases or promotion Applies to overall increases in your company s Salary Structure Attract and retain qualified personnel Escalated yearly to keep with inflation Escalated on date of salary increases, employee s anniversary date or salary scale 24 12

13 Cost Build-up Escalation Factor Apply to direct labor Basis of factor Dept. of Labor, Bureau of Labor Statistics CPI-Urban economic index CPI-U It is a measure of the average change in the prices paid for a fixed market basket of goods and services purchased for consumption by the population covered by the urban index. Cost Build-up CPI-U For wage earners Professional, managerial, and technical Overall index: Historical CPI for Urban Wage Earners & Clerical Workers: U.S. City Average, All Items Example: December 2013 ( ) December 2012 ( ) = / % is the escalation factor 26 13

14 Data DCAA May Request Labor classifications (grades or levels) RFP specified Developed from technical team in Technical Volume(TV)-make sure data correlates to TV Very important for time and material labor classes, based on skill levels from resume Compare proposed hours to historical production hours using learning curves for similar or follow-on production 27 Data DCAA May Request Basis of Bill of Material Consolidated summary showing prices associated with individual material quantities for delivery orders, CLINs, Lots Prices based on current vendor quotes, historical invoices, competitive bids Include raw materials, parts, components, assemblies Identify by item, source, quantity and price 28 14

15 Data DCAA May Request Basis of subcontract prices Contractor s price analysis of Subk proposals Subk cost or pricing data subject to TINA and contractor s assessment of TINA for Subk Degree of competition and basis for establishing source and reasonableness of price for acquisitions: Subk, P.O, work order Any teaming arrangements? Inter-Organizational Transfers (IOT) pricing method to demonstrate other-than-cost for commercial work for division, subsidiary Data DCAA May Request Basis of indirect cost Fringe, overhead, G&A, Subk or mat handling Indirect costs are a significant portion of bid How is indirect cost/rates established? Approved forward pricing rates with DCAA Approved provisional billing rates w/dcaa Based on historical cost, prior FY comparisons Based on projected cost using regression 30 15

16 Data DCAA May Request How is indirect cost/rates established? Direct labor relationship to sales revenue increase/decrease, use trend analysis EXCEL If large, mega-proposal, expectation of impacted (reduced) indirect rates based on long-range forecast / strategic plan Unsupported cost = Disallowed Cost Insufficient documentation to support proposed costs in order to get an audit opinion 31 Sample Price Proposal From Pages 24 to 32 of Encl. 3 Information for Contractors 16

17 Any Questions 33 The materials contained herein or discussed in the seminar or shown in the MS Powerpoint slides, are for illustrative and academic purposes only and should not be considered appropriate for your organization without careful adaptation by experts in the appropriate field of endeavor. DISCLAIMER 17

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