Presentation on theme: "Contract Pricing and Pricing Strategies"— Presentation transcript:
1 Contract Pricing and Pricing Strategies TIDEWATER GOVERNMENT INDUSTRY COUNCILContract Pricing and Pricing StrategiesBeverly Arviso, CPA, CPCM, CFCM, NCMA FellowArviso, Inc.
2 Planning the Pricing Strategy Understanding the Requirements TIDEWATER GOVERNMENT INDUSTRY COUNCILLearning ObjectivesPlanning the Pricing StrategyUnderstanding the RequirementsCost or Pricing DataPrice AnalysisCost Analysis and Cost Realism AnalysisIndirect Rates and Competitive Rate StrategiesBest Practices
3 Planning the Pricing Strategy TIDEWATER GOVERNMENT INDUSTRY COUNCILPlanning the Pricing StrategyIdentify core business areas and what opportunities to pursueDevelop a bid/no bid decision processDevelop a Bid and Proposal (B&P) budgetStart the proposal activity early in the processIdentify the proposal teamInternal and external partiesFAR Limitation on SubcontractingTeaming AgreementsNon-Disclosure Agreements
4 Planning the Pricing Strategy TIDEWATER GOVERNMENT INDUSTRY COUNCILPlanning the Pricing StrategyDevelop a proposal scheduleInclude due dates for the pricing teamPrepare a compliance matrixInclude assignments and responsible author with clear due datesSchedule kick-off meeting with teaming partners
5 Understanding the Requirements TIDEWATER GOVERNMENT INDUSTRY COUNCILUnderstanding the RequirementsObtain a clear understanding of the requirementsRead the solicitation (and read it again, and again, and again…..)Determine the contract type(s)Section B, Supplies or Services and Prices/CostSection C, Statement of WorkSection L, Instructions, Conditions, and Notices to OfferorsSection M, Evaluation Factors for AwardClarifications, discussions, and negotiationsEvaluated price vs. proposed price
6 Understanding the Requirements TIDEWATER GOVERNMENT INDUSTRY COUNCILUnderstanding the RequirementsPricing Policy (FAR )Contracting Officers SHALL:Purchase supplies and services from responsible sources at fair and reasonable pricesmay require certified or other than cost or pricing data to make that determinationPrice each contract separately and independentlyNOT include any amount for a specified contingency to the extent that the contract provides for a price adjustment based on the occurrence of that contingency
7 Policy on cost or pricing data TIDEWATER GOVERNMENT INDUSTRY COUNCILCost or Pricing DataPolicy on cost or pricing dataDo not obtain more information than necessaryData collection and preparation is expensiveOrder of preference for type of data requiredNo additional information is needed if the price is based on adequate price competitionInformation other than cost or pricing data(Certified) cost or pricing data
8 Cost or pricing data (defined at FAR 2.101): TIDEWATER GOVERNMENT INDUSTRY COUNCILCost or Pricing DataCost or pricing data (defined at FAR 2.101):Factual, not judgmental and are verifiableMore than just historical data, cost or pricing data includes all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred
9 Cost or pricing data (defined at FAR 2.101): TIDEWATER GOVERNMENT INDUSTRY COUNCILCost or Pricing DataCost or pricing data (defined at FAR 2.101):Include, but not limited to, such factors asVendor Quotes;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; andInformation on management decisions that could have a significant bearing on costs.
10 Threshold for requiring certified cost or pricing data is >$700,000 TIDEWATER GOVERNMENT INDUSTRY COUNCILCost or Pricing DataThreshold for requiring certified cost or pricing data is >$700,000Exceptions to certified cost or pricing dataPrices are based on adequate competitionPrices agreed upon are based on prices set by law or regulationCommercial item acquisitionsWhen a waiver is grantedWhen modifying a contract or subcontract for commercial items
11 TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org Cost or Pricing DataOther circumstances where certified of cost or pricing data are not requiredExercise of an option at the price established at contract award or initial negotiationProposals used solely for overrun funding or interim billing price adjustments
12 Always involves some form of comparison TIDEWATER GOVERNMENT INDUSTRY COUNCILPrice AnalysisExamination and evaluation of a proposal without evaluating each separate cost element or proposed profitAlways involves some form of comparisonCompetition in the market determines the price to be fair and reasonablePrice analysis is required in every acquisition
13 Price Analysis Techniques TIDEWATER GOVERNMENT INDUSTRY COUNCILPrice AnalysisPrice Analysis TechniquesComparison to other proposals receivedComparison of previously proposed prices for the same or similar items or serviceCommercial items or servicesPrices set by law or regulationCatalog pricesIndependent Government Cost Estimates (IGCE)
14 Price Analysis alone may not be sufficient for TIDEWATER GOVERNMENT INDUSTRY COUNCILPrice AnalysisPrice Analysis alone may not be sufficient forSole source procurements, including FFPModifications or changes to existing contracts
15 Cost Analysis and Cost Realism Analysis TIDEWATER GOVERNMENT INDUSTRY COUNCILCost Analysis and Cost Realism AnalysisCost AnalysisThe review and evaluation of separate cost elements and profit or fee proposed to determine a fair and reasonable price or to determine cost realism, andThe application of judgment to determine how well the proposed costs represent what the cost of the contract should be assuming reasonable economy and efficiency
16 Cost Analysis and Cost Realism Analysis TIDEWATER GOVERNMENT INDUSTRY COUNCILCost Analysis and Cost Realism AnalysisCost Analysis TechniquesVerification of cost or pricing data and evaluation of cost elementsEvaluate the effect of the offeror’s current practices on future costsCompare costs proposed for individual cost elementsVerification that the offeror’s cost submissions are in accordance with FAR Part 31 and CAS (if applicable)Review to determine whether any cost data or pricing data, necessary to make the proposal suitable for negotiations, have not been either submitted or identified in writing by the offerorAnalysis of the results of any make-or-buy program reviews, in evaluating subcontract costs
17 Cost Analysis and Cost Realism Analysis TIDEWATER GOVERNMENT INDUSTRY COUNCILCost Analysis and Cost Realism AnalysisCost realism means that the costs in an offeror’s proposalAre realistic for the work to be performed,Reflects a clear understanding of the requirements, andAre consistent with the various elements of the Offeror’s technical proposal
18 Cost Analysis and Cost Realism Analysis TIDEWATER GOVERNMENT INDUSTRY COUNCILCost Analysis and Cost Realism AnalysisCost Realism AnalysisExamination of proposed costs and/or prices to ensure the price the government will pay is consistent with the required contract effortPerformed on cost reimbursement contracts to determine the most probable cost of performance for each offerorMay differ from the proposed cost and should reflect the Government’s best estimate of the cost of any contract that is most likely to result from the offeror’s proposal
19 Cost Analysis and Cost Realism Analysis TIDEWATER GOVERNMENT INDUSTRY COUNCILCost Analysis and Cost Realism AnalysisTwo Objectives of Cost Realism AnalysisDetermine if the proposed cost/price realistically reflects the effort required to perform the contractConsider the risk in the award decision, i.e., if the offeror refuses to support the realism of the estimates and refuses to make changes, the contracting officer must assess the risk to the Government when making the award decision
20 Indirect Rates and Competitive Rate Strategies TIDEWATER GOVERNMENT INDUSTRY COUNCILIndirect Rates and Competitive Rate StrategiesDirect CostsDirect laborSubcontract CostsTravelMaterialOther Direct Costs (ODCs)Indirect CostsFringeOverheadGeneral and Administrative (G&A)Unallowable Costs
21 Indirect Rates and Competitive Rate Strategies TIDEWATER GOVERNMENT INDUSTRY COUNCILIndirect Rates and Competitive Rate StrategiesIndirect Rate Calculation = cost pools/allocation basePools are defined by placing costs in logical groupings, e.g., fringe costs, overhead costs, G&A costs, unallowable, etc.The allocation base is defined as some measure of cost that can be used to allocate the pool cost, e.g., direct labor hours, direct labor dollars, machine hours, etc. Cost Pools
22 Indirect Rates and Competitive Rate Strategies TIDEWATER GOVERNMENT INDUSTRY COUNCILIndirect Rates and Competitive Rate StrategiesIndirect Rate DevelopmentDevelop estimate on an account by account basisIdentify increases in direct and indirect wagesIdentify increases to statutory fringes based on increased wagesAdditional 401k, medical, dental, vision, worker’s compensationAdditional office space, dues and subscriptions, training, phones, etc.
23 Indirect Rates and Competitive Rate Strategies TIDEWATER GOVERNMENT INDUSTRY COUNCILIndirect Rates and Competitive Rate StrategiesIndirect Rate Development Cont’dProvide forecast of indirect rates for all years, converted from contractor fiscal year to contract yearExplain how indirect costs and rates are computedExplain how indirect rates are appliedProvide cost breakdowns, trends, and budgetary data
24 Indirect Rates and Competitive Rate Strategies TIDEWATER GOVERNMENT INDUSTRY COUNCILIndirect Rates and Competitive Rate StrategiesCreate multiple fringe ratesCreate service centersCreate multiple overhead ratesChange from total cost input G&A to value added G&ARedefine the treatment of costs from indirect to directRate ceilings
25 Read RFP carefully to ensure it doesn’t violate CAS or FAR TIDEWATER GOVERNMENT INDUSTRY COUNCILBest PracticesRead RFP carefully to ensure it doesn’t violate CAS or FARG&A on travel is allowable if it is consistent with the offeror’s accounting practicesReview solicitation website often for changesPrepare, update, and delivery proposal using a compliance matrix that is updated as changes to the solicitation are madeClearly align technical proposal with cost/price proposal
26 TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org Best PracticesReduce math errors or inconsistencies in the cost/price proposal byUsing roundingUse of an independent party to verify cost proposal on a calculatorNegotiate proper subcontract typesBeware of fixed fee dilutionBe audit readyDue date/timePricing resource:
27 Beverly Arviso, CPA, CPCM, CFCM, NCMA Fellow TIDEWATER GOVERNMENT INDUSTRY COUNCILQuestionsBeverly Arviso, CPA, CPCM, CFCM, NCMA FellowArviso, Inc.