1 Pratt & Whitney Rocketdyne Supplier/Buyer Training July 21, 2009
2 Presenters Ed Kasaba Greg Manley Gary Pedersen Jim Scarpati Mike Suever
3 Supplier Proposal Training This training is generalized in natureEach Proposal has its specific requirementsNo two Proposals are the same, but, many similarities do existPrograms tend to develop boilerplate RFQ/RFP packages tailored to their specific customer requirementsBuyer’s tend to modify boilerplates to satisfy their needs – ensuring all requirements are thereSo, we recognize RFQ/RFPs from various programs/buyers look different – PWR working to standardize the process
4 AGENDA Disclaimer Mike Suever Proposal Cost Overview Greg Manley Firewall Ed KasabaProposal Process Greg ManleyProposal Compliance Mike SueverGenerating the proposal Greg ManleyMake/Buy Mike SueverTypes of Estimates Greg ManleyRFP/RFQ Mike SueverDifference of RFP and RFQ and RFI Gary PedersenSource Selection Gary PedersenPWR Evaluation Criteria Jim Scarpati & Greg ManleyCompleting the PWR Proposal Greg ManleyChange Proposals Mike Suever
6 CustomersPWR has different types of customers and sales as identified below:Government contracts - Prime. These consist of sales to Department of Defense (DoD) (Army, Navy, Air Force, and other DoD agencies); National Aeronautical and Space Administration (NASA) development centers, laboratories, test centers; and other Government departments and agencies (e.g., transportation, energy, and so forth.). Also included are foreign military sales contracted through a DoD or Government agency.Subcontract. Programs within PWR may be contracted as a subcontractor or team member to another aerospace company or team of contractors on a Government contract.Commercial and direct foreign sales. These types of sales are to other companies for products or services not subject to government procurement regulations, and to foreign governments as a direct sale.
8 Types of Solicitations RFP -- Request for ProposalRFQ -- Request for QuoteITQ -- Invitation to QuoteECP -- Engineering Change ProposalBAA -- Broad Agency AnnouncementUsed by DOD for basic and applied research not related to the development of a specific system or hardware procurementCAN -- Cooperative Agreement NoticeUsed to advance and commercialize technology where government has unique capabilitiesNTE -- Not to Exceed ProposalNRA -- NASA Research AnnouncementUsed by NASA for research interests in support of NASA programsPRDA -- Program Research and Development AnnouncementUsed by DOD for exploratory research that has general application and is not system specific
9 Contract Types Contract types are grouped into two broad categories: Fixed priceCost reimbursementThe specific contract types range from firm fixed-price, in which the contractor has full responsibility for the performance costs and resulting profit (or loss), to cost-plus-fixed-fee, in which the contractor has minimal responsibility for the performance cost and the negotiated fee is fixed. In between are the various incentive type contracts in which the contractor's responsibility for the performance costs and the profit a fee incentives offered are tailored to the uncertainties involved in contract performance.Time and materials contracts offer characteristics of both fixed- price and Cost-reimbursement type contracts. Indefinite-delivery type contracts also offer unique contracting characteristics
10 Types of Contracts Cost Reimbursable (Cost Type) Cost Plus Percentage of Cost (Illegal)Cost Plus Fixed FeeCost Plus Award FeeCost Plus Incentive FeeFixed PriceFirm Fixed PriceFixed Price Level of Effort
11 Types of Contracts Time and Material (T&M) Contracts A T&M type contract provides for acquiring supplies or services on the basis of botha. Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative (G&A) expenses, and profit.b. Materials at cost, including, if appropriate, material handling (overhead) costs as a part of material costs.
12 Contracting MethodsFormal advertising (sealed bid) is preferred by the GovernmentContracting by negotiation is the alternativeGoverned by FARBasis for agreement on terms and price
13 Cost Type (Cost Reimbursable) Costs are paid provided they areAllowable – check FARAllocable – charge the right contract and comply with the CAS Disclosure StatementDirect or Indirect or G&AFee is based on “Target Cost”Proposal and negotiations determine target cost and are used to establish fee
14 Firm Fixed PriceUsed when costs can be estimated with good assurance e.g., based on recent production cost experienceYou do a defined job and get a defined paymentCan be used for large production contractsRisks and opportunities are high
15 Fixed Price Level of Effort Used for small contracts or task ordersFor example –200 $200 / hour. Bill hours at a rate.Your billing rate includes your profit.Subtleties about engineering hours vs. business hoursEnsure contract is clear.
16 Risk vs. RewardCost reimbursable contracts inherently have limited risk for the contractor. They are most frequently used for new technology and research and development contracts – not production.Fixed price contracts involve risk. The contractor needs to deliver a good product no matter what the cost.Profit opportunities may be greater on FP contracts than on cost reimbursable.
17 Contract Modifications The Government uses the “Changes” clause to add or delete workMust be in scope of original contractRequires and “equitable adjustment” to contract cost, fee, period of performance, schedule, place of delivery, etc.Change proposals are submitted and negotiated on a fairly routine basis
18 What Is A Winning Proposal? A business proposal is a written offer from a seller to a prospective buyer. Business proposals are often a key step in the complex sales process--i.e., whenever a buyer considers more than price in a purchase.There are three distinct categories of business proposals: formally solicited, informally solicited, and unsolicited.Having defined a proposal, what is a winning proposal?What are the characteristics of the proposal, the organization, and the solution which make it attractive to evaluators?
19 What Is A Winning Proposal? Winning proposals have four characteristics in common:The supplier fully understands the needs and problems.The supplier knows how to satisfy the needs or solve the problems and offers a suitable plan.The supplier is well qualified by virtue of experience and resources, including personnel, to carry out the proposed plan; andThe price asked is reasonable and is within the organization's budget.
22 PWR Firewall Training Definition of a Firewall: A process or procedure that limits the flow of information from, to, or within PWR.It is used primarily where unrestricted access to the protected information might introduce bias or confer an actual or apparent unfair competitive advantage to PWR.A firewall procedure specifies both how protected information will be treated and with whom authorized PWR employees (or consultants) may share the information.
23 PWR Firewall Training Types of Firewall Work Restrictions: Duration of the FirewallPhysical Segregation of WorkElectronic Segregation of InformationPast Employment RestrictionsFuture Work RestrictionsInformation Marking Requirements
24 PWR Firewall Training Firewall Procedure/Process: A firewall assures compliance with the terms of a Nondisclosure Agreement (NDA) with another company.A NDA assures that PWR will use that company’s proprietary information only for the purposes identified in the NDAA NDA assures that only a defined group (e.g., employees and possibly contract labor and/or consultants) who have a need to know the information will have access to that company’s proprietary information.
25 PWR Firewall Training Firewall Procedure/Process (cont): A firewall is appropriate when a Boeing organization is involved in assisting an agency (or other customer) to define the requirements for a program, and another organization within PWR is likely to bid for the program.- FAR or may prohibit PWR participation in the subsequent procurement because of the concern that PWR might craft the requirements so as to give it an advantage against potential competitors.A firewall may arise where PWR is a participant on more than one team competing for a contract.- It assures that the PWR IPT’s supporting the different teams bidding for the contract do not share information about their team’s proposal with persons supporting any other team.
26 PWR Firewall Training PWR Management Responsibilities: Manages the business.Primarily handles resource, commitment, programmatic issues.Assures even and level competition.Programmatic and technical oversight.Executive communication with the customer – primarily commitments.May have knowledge of multiple customer’s projects – must firewall internally.Must restrict information given to the firewalled teams.Generally will limit information received from the firewalled teams to a need to know basis.Should not participate in the development of the customer’s strategy, concepts, program plans or any other competitive aspects of his/her proposal/project.
27 PWR Firewall Training Firewalled Team Responsibilities: Manages the Project/Program.Translates Prime requirements into specific PWR technical system requirements and requests.Handles All Programmatic, Technical, and Business Communication with the customer.Communicates technical and business data to the customer.Communicates task requirements and outcomes with process support personnel outside the firewall.Controls (i.e. filters & sanitizes) information flowing to both the customer and the non-firewalled process area support personnel to assure that competition sensitive data, including both hard data and abstract information is not transferred.
28 PWR Firewall TrainingNon-Firewalled Process Area Support Team Responsibilities:Defines task assignments with PWR Firewalled interfacePerforms & reports task outcomes to PWR Firewalled interfaceDoes not communicate with the customer- Should limit work on more than one customer to the extent possible
29 PWR Firewall Training Restrictions: Non-firewalled personnel SHALL NOT perform or participate in the following:Development of the customer’s strategy, concepts, program plans or any other competitive aspects of his/her proposal/project.Generating, reviewing, or negotiating the customer’s proposal, or of PWR’s proposal to the customer that would be embodied by the customer’s proposal other than to provide generic PWR data such as past performance, etc., or to review specific portions of PWR’s proposal that clearly are not competitive discriminators between the customer’s proposal (e.g. PWR pricing data).Push suggestions that could “cross pollinate” a customer’s ideas to other customer or PWR interfaces or otherwise influence a customer’s competitive position on knowledge of another customer’s proposal.
30 PWR Firewall Training Third Party Proprietary Information When PWR is working cooperatively with another company, the obligation in the firewall should be limited to protect proprietary information of the other party.- Even where the information is not marked, however, it must be treated as protected if its contents are clearly proprietary information, such as financial information or trade secrets.- This information should not be shared with another part of PWR or any other defined group.
31 What is a Non Disclosure Agreement (NDA) A Non Disclosure Agreement is an Agreement between the Parties that:Protects trade secrets and proprietary informationDefines rights and obligations of parties with respect to information being sharedDescribes nature of information, permitted use, type of protection, how long will the information be shared, with whom, etc.An NDA is a legally binding contract when executed by all parties
32 When is An NDA NeededNDAs are used generally when disclosure of Proprietary Information will take place in the course of discussions prior to execution of a definitive business contract.Prepared in connection with specific programs or business or technical discussions
33 Non Disclosure Agreement (NDA) An NDA is not required when the exchange of data occurs under the scope of a purchase order (PO) that incorporate proprietary information protection in the Pratt & Whitney Rocketdyne, Inc. (PWR) General Provisions unless there is a PWR/program requirement to obtain a separate agreement even though PO includes the proprietary information.
35 Pre-RFP Planning Identify customer needs/funding constraints Understand market needsIdentify competition and determine their approachEvaluate your strengths & weaknesses vs. competition & customer expectationsIdentify your proposal team and sub-tier suppliersGenerate capture strategy - win factors, themesIdentify key personnel -capture team (Engineering processes, OPS, C&P, QA, others as needed)Identify requirementsDevelop PA budget for management and team (inchstone level)Identify IR&D/capital requirements
38 Analyze the Proposal Requirements Read the request for proposal (RFP)Understand the statement of work (SOW) and proposal typeGenerate ground rules and assumptionsProposal preparation guidelinesDue dateRequired volumesPage and print specificationsEvaluation criteriaTechnical description (SOW)Expected program lengthExpected program costProcurement contract typeDeliverable items (hardware, data, etc.)Activity:Analyze actual solicitation (PRDA, BAA, or?)CustomerContract typeWork and deliverablesProgram length and costProposal due dateFormat guidelinesEvaluation criteriaCreate and generate a compliance matrix early77
39 Think of the RFP as a Quiz Answer the questions clearly and explicitlyWhat? -- SOW/WBS/program planHow? -- Baseline/tech approachWhen? -- Master program scheduleWho? -- Organization/RAMWhere? -- FacilitiesWhy? -- Discriminators, themes, trades
40 Beginning of the Proposal Process Proposal manager identifiedReview available dataCapture strategyProgram overviewMIRs or selection criteria - Win factors, themesDevelop WBS & dictionarySOW & specificationsDesign-to-cost targetsProgram scheduleRisk management planBusiness plan (Program Performance Plan)Establish technical conceptsProgram organizationMake/buy planHardware listTest planDetermine profit objective
42 Proposal Receipt RFP receipt by PWR Contracts Accounting Established Proposal Plan of Action DevelopedProposal Manager Calls Kick-off meetingProposal Team begins the Requirements Review and ShredSystems Integrity develops Supplier Flowdowns
43 Purpose Ties proposal response to requirements and evaluation criteria Flows RFP requirements to proposal outlineTool for establishing proper page countEnsures compliance with proposal requirements
44 How Matrix DevelopedWe use a macro developed in house that parses a Word document into an Excel spreadsheet*We then use the spreadsheet to develop an annotated proposal outline with descriptive headings, section assignments, page allocations, graphic notes, themes, writing assignments/instructions, and linkages to customer’s evaluation criteria*This is an inexpensive option, but there are products available on the market that will parse RFPs. See APMP.org
45 Requirements Matrix Each requirement should be a separate line Most Important Requirements (i.e., Evaluation Criteria) drive page allocation
46 DRD MatrixDevelop a separate matrix for Data Requirements Deliverables
47 How Suppliers Can HelpWe recommend that Suppliers use a similar principle in reviewing PWR Requests for Proposals or QuotationsOften, we have tried many ways of identifying key/critical elements needed within the proposal and with rare exception they’re missedIn the past, we have bolded the key/critical elements, developed checklists, etc. to no avail.We welcome any ideas on how to get our RFP’s read by the Suppliers!!
49 Proposal Preparation Proposal Outline Themes Mockup Technical & Cost are to be Prepared TogetherApproach must be Life Cycle OrientedPWR Affordability ProcessProposal Schedule
50 Proposal Steps Target Assessment Customer RFP Requirements RFP-Statement of WorkPrice Tasks within WBS– 1st Pass, Compare to TargetAssess/Identify Scope for ReductionPrice TasksEstimate DevelopmentHrs, mat’l, ODCProgram PlanWBSCustomer RFP RequirementsGround-Rules and AssumptionsTerms and ConditionsDesign to Cost (DTC) TargetsWork Organization & WBS Task DescriptionIntegrated Program Master Schedule/Major Milestones and Activity SchedulesMake/BuyTask PlanningWork DecompositionContract Data Requirements/Data Requirements etcIdentify Historical References or other Basis for Estimate – Data Driven EstimatesTarget AssessmentWithin DTC Target?YesNoScope Risk and OpportunitiesIdentify R&O’s when EstimatingPrice Task
51 Proposal Planning Steps Develop:Proposal scheduleExecutive/process management review planVolume outlinesProposal responsibility assignment matrixIdentify attendees to kick-off meetingIdentify relevant program history from which to base estimatesProposal ground rules & pricing instructionsRFP compliance matrixPlan proposal kickoff meeting
52 Study the RFP, Then Create the Outline Write the outline to match the RFPWhat the customer asked for, the way they asked for itRedline the RFP–then write your outlineAnalyze the similarities and differences in:Instructions, Evaluation Criteria and Technical Description/requirementsChoose a technique to address all areas:Embed one section's requirements within anotherCross reference to account for all requirementsCoordinate outline with compliance matrixMake each item a heading initially so nothing is forgottenFormat the headings as they will appear in the proposalAdd section themesAddress the SOW item by itemAddress the evaluation criteria explicitlyAssign writers and page allocationsIndicate desired tables and figuresInclude schedule, WBS, RAM, organization chartOutline development should be interactiveRevise and redistribute as needed (highlight changes in the morning meeting)
53 Proposal Kick Off Meeting (PPOA) Brief proposal team operating groundrulesBrief Program requirements, MIR’s, Potential Competitors etcDistribute SOW, specifications, WBS etc.Brief proposal outline, mockups, and executive summaryDistribute schedules, RAMS, budgets (hours/task for each person)Communicate Make/Buy plans (ie for the Bill of Material)Distribute DTC goals for each IPTCommunicate Tech Volume and Cost Volume requirementsIdentify outstanding information and action plan
54 Technical and Cost are Prepared in Parallel Technical Proposal PhasesCapturePlanningOutlineMockupsDraftFinalProposalCost TargetsDesign to CostBasis ofEstimatesPreliminaryCost RunFinalCost RunCost Proposal PhasesEach Technical Proposal phase has a counterpart Cost Proposal phase
55 The Proposal Schedule (30 days) Must be complete prior to kickoff meetingShould include:Exact calendar dates based on RFP dataKickoff PreparationInclude capture team productsProposal input preparation periodsFinal OutlineMockupsDraftsFinal revisions completePricing scheduleFinal cost targetsManpower inputs/BOEsSubcontractor/purchased material bidsFinal pricing runsReviewsPrinting/ShippingMake it as detailed as practicalUpdate and status every day–highlighting concern areas
56 Fact-Finding PWR Pricing acts as lead to support ALL audit activities Provides DCAA, etc. With proposal copiesCoordinates all meetings between DCAA & PWR staffDocuments all issues and responsesAttends exit conferenceCA acts as lead to support all fact finding activitiesCoordinate all meeting between customer & rdPM & functions support both as need
57 NegotiationsPWR Legal/CA acts as lead to support ALL Negotiation activitiescoordinate all meeting between customer & RDdocuments all issues and responsesexchanges offers & counter offersSummarize cost impacts for ManagementPM & functions support both as needPricer updates C&P data & coordinates disclosures w/CAPricer performs sweeps & certs if applicableCA completes memo of negotiations
59 Make or Buy Planning Process Executive Mgmt responsible will co-Chair or appoints Program Manager to co-Chair the Make/Buy CommitteeOperations Executive Mgmt will co-Chair or delegate to a subordinate manager the Make/Buy CommitteeMake/Buy Committee consists of:FinanceSupply Management (Committee Secretary)EngineeringQuality AssuranceBusiness DevelopmentContractsHuman ResourcesSmall Business Administrator
60 Make or Buy Planning Process The Make/Buy decision making process divides parts and processes into the following three categories:Must Make: Hardware consisting of details, subassemblies and assemblies that historically demand extreme attention & close coordination between functions.Must Buy: Hardware such as raw material, castings/forgings, catalog or industrial hardware that PWR cannot produce.Can Make or Buy: Hardware not contained in the above categories and could be made in house or procured. Typically, the majority of Program requirements fall into this category.
61 Make or Buy Planning Process A Bill of Material (BOM) or conceptual BOM is developed by the Integrated Product Team and/or Engineering.The Integrated Product Teams, based upon recommendations from PWR Operations, and in conjunction with their Industrial Systems Integration Teams performs an assessment of capacity, capability, overall costs required to support the program and develop a sourcing strategy.
62 Make or Buy Planning Process IPT presents the program sourcing strategy of make or buy recommendations to the Make/Buy CommitteeThe Committee is responsible for sourcing material in a manner the best utilizes PWR Operations’ and Supplier resources.Prime consideration is given to quality, cost and schedule requirementsThe Committee reviews the Program Sourcing Strategy considering core competencies, cost, schedule, risks, requirements, Small Business objectives, etc.A Specific Program Make/Buy Plan developed & ApprovedPlan integrated into the Program Execution Plan
63 Make/Buy Analysis Uniqueness Competitive Advantage Unique Components (LTA’s, Strategic Alliances, Etc)Strategic In-house Make(Must Make)Buy – Common Not a Comp Adv.Competitive Advantage(Can Make/Can Buy)Competitive Advantage
64 Supplier Risk Assessment RisksHigh564Medium4Likelihood of Occurrence343712652Mitigation Status513Low712345Consequence of OccurrenceOriginalChange
65 Manufacture or Purchase Planning Process Internal Process to decide:Sufficient capacity and support to core competencies exist to make productIf not, recommend outsourcingDecision to be in concurrence with the PWR-Operations Strategic PlanSimilar to Make or Buy – Committee formed to review same as Make or BuyNormally convenes after Prime Contract Award to PWRAnalysis performed to consider Program schedules, cost, shop load and process capabilities and risksUpon analysis completion, subcommittees present recommendations to CommitteeCommittee approves and documents manufacture or purchase plan
67 Types of EstimatesWithin the proposal process, various kinds of estimates and quotations are prepared as defined in the following text. These definitions are consistent with those published by the Society of Cost Estimating and Analysis (SCEA) and DoD. Cost estimates are primarily prepared to respond to solicitations, however; they are also prepared to support technical studies, life cycle cost (LCC), cost as an independent variable (CAIV), "what if exercises, and design trade studies.Budgetary and Rough Order of Magnitude(ROM) - These estimates are for comparative studies on new programs and long-range procurement planning for established programs. Both the customer and PWR use them for analysis, preliminary program planning and scheduling purposes, and establishment of fund allocations. These estimates are usually prepared from minimum design and work statement information. Planning, budgetary, and rough order of magnitude (ROM) estimates do not bind PWR to perform a contract within a given price. However, because of the frequent reliance on these cost/prices for fiscal year funding and procurement planning and scheduling, considerable effort is made to achieve accuracy in their preparation. Contingencies may be added to these estimates to cover uncertainties.
68 Types of EstimatesFirm Quotations - These are prepared to definitize the price of a program or work package. When definitized, the price is a binding obligation on PWR. Estimates for firm quotations are normally based on well-defined statements of work and plans, but can also be based on minimum design and work statement information.Not-to-exceed (NTE) - A not-to-exceed (NTE) estimate is a firm and binding obligation by PWR to perform at a cost to the customer not greater than the NTE quotation, assuming no change in the contractual baseline. NTE estimates are generally quoted to a customer when the statement of work and other conditions are definitive enough to establish a firm baseline. A contingency is often added to allow for definition and cost estimating uncertainties.Not-less-than (NLT) -A not-less-than (NLT) estimate is a firm credit estimate by PWR and includes all requirements of an NTE proposal except for the ensuing commitment, which will not be less than the NLT quotation.
71 Difference of RFP and RFQ and RFI DefinitionsTypes of solicitationsEvaluation criteriaSPI Process
72 Difference of RFP and RFQ and RFI Request for Proposal (RFP)Request for Quote (RFQ)Request for information (RFI)
73 Difference of RFP and RFQ and RFI DEFINITION of RFP:Request for Proposal (RFP) - A solicitation to prospective suppliers where the supplies and/or services described are highly complex, undeveloped products and/or services, requiring a response detailing technical and management expertise and a proposed design/development approach.
74 Difference of RFP and RFQ and RFI DEFINITION of RFQ:Request for Quotation (RFQ) - A solicitation to prospective suppliers wherein the requirements described are existing, “off-the-shelf” equipment, build-to-print parts with known specifications, common services, or otherwise sufficiently defined so that the award can be made on the basis of price and past performance from the responsive bidders.
75 Difference of RFP and RFQ and RFI DEFINITION of RFI:Request for information (RFI) - is a standard business process whose purpose is to collect written information about the capabilities of various suppliers. Normally it follows a format that can be used for comparative purposes.An RFI is primarily used to gather information to help make a decision on what steps to take next. RFIs are therefore seldom the final stage and are instead often used in combination with the following: request for proposal (RFP), and request for quotation (RFQ).See Sample RFI – NASA Display of Shuttle and SSME
76 Types of solicitations A solicitation is a document, sent to prospective contractors by a Government agency, requesting the submission of offers or information. This is a generic term that includes the following types of solicitations:Invitations for Bids (IFBs)Requests for Proposals (RFPs)Requests for Quotations (RFQs)
77 Invitation for Bids (IFB) The Invitation for Bid (IFB) is the solicitation document used in Sealed Bidding procurements.IFBs must describe the Government’s requirements clearly, accurately, and completely.It includes all documents needed by prospective bidders for the purpose of bidding plus all terms and conditions of the prospective contract (except price) so that all bidders will submit bids on the same basis and award can be made solely on the basis of price and price-related factors.FAR You will use this type of solicitation when your requirement is definitive, pricing is stable, competition is expected, and there is not a need to hold discussions with any potential bidders.
78 Buyer’s Role in the RFQ/RFP Process Upon receipt of a requirement the Buyer reviews and determines if the originating organization(s) has furnished complete specifications, blueprints, statements of work (SOW), description of item(s) to be purchased, etc., so that requirements can be adequately defined in the RFQ/RFP and any resulting Purchase Order (PO).The Buyer will contact originating organization(s) or Integrated Product Teams (IPTs) if additional data is required.
79 RFQ StructureThe Buyer is responsible for the entire content of the RFQ. The RFQ should be structured in such a manner to assure that all requirements are clearly delineated on the RFQ and that the supplier clearly understands the requirements.In some cases, the Buyer may need to provide additional clarification of the requirements to assure complete understanding by the supplier. In such cases, the Buyer is responsible for providing consistent information to all solicited suppliers.
80 TINA, CAS, SB Plan REMINDER: During solicitation phase for Government procurements $500K and above, consider the applicability of:TINA - $650K (FAR )CAS - $650K (FAR )SB Subcontracting Plan - $550K (FAR )
81 Supplier Steps To Providing A Responsive Proposal Do’sRead the RFP InstructionsContact the Buyer regarding RFP questionsMeet the RFP deadline and provide a Proposal which meets the RFP instructionsProtect PWR proprietary dataProtect Export controlled dataDon’tsContact technical personnel for questions during the proposal process unless Buyer instructedWait to the last minute to ask for an extensionContinually ask for extensions
82 Request for proposal Key objectives Obtain correct information to enable sound business decisions.Ensure that all suppliers have an equal understanding of the requirements.Enable a broader and creative range of solutions to be considered.Responsive Bids allow PWR purchasing to evaluate proposals to obtain a favorable deal.
83 Evaluation Criteria Responsive Bid Price Delivery Technical Solution Past Performance (SPI)Financial StabilityAgreed Upon Terms & Conditions
84 Steps In The RFP Evaluation Process Step One: Review All ProposalsStep Two: Determine Status. Determine if proposal is “responsive” or “non-responsive”Step Three: Score Proposals based on criteria established in the RFPStep Four: Discuss Proposals. The evaluation committee reaches a “unified understanding” of the criteria and corresponding responses. Individual scores may be adjusted at this point based on discussion. Tally results.Step Five: Interview. This step is optional. This is an opportunity for both sides to explain their viewpoints
85 Steps In The RFP Evaluation Process Step Six: Discussion/Negotiation. This step can be optional, but may be required.Step Seven: Best and Final Offer. This is optional. Once a BAFO is received the committee will evaluate it in the same manner as the original proposal.Step Eight: Recommendation. Written recommendation includes scores, justification and rationale for the decision.Step Nine: Management Review of committee scoring and justification. If accepted, the winning proposal will be used to roll up in PWR proposal or award PO to supplier if using company funds or after PWR is awarded a contract.
87 Proposal/Source Selection Receipt of ProposalBest Value Proposal EvaluationQuality PerformanceSchedule PerformancePriceNon-recurring costs impact to overall price evaluationProposal Evaluation Tool (SPI Tool)Terms & ConditionsTechnical Evaluation (as required)Source Selection Board (as required)
88 Source Selection PURPOSE AND SCOPE: To define the process for fairly and ethically evaluating and selecting best value sources of supplies and services.Competitive ProcurementsNon-Competitive Procurements
89 Source Selection process PWR Buyer Criteria – See PWR 5.3.2Selection ProcessCompetitive (Best Value – SPI evaluation)Non-Competitive (Determination of reasonableness)Fact-findingNegotiationAward
90 Evaluation of Quotations or Offers Many source selections are relatively straight forward and may be completed primarily on the basis of price competition. Other more complex source selections require an assessment of other factors.Best Value Analysis - An evaluation technique based upon an integrated assessment of a supplier’s technical, management, cost or price, and schedule elements, as well as the supplier’s past performance record with PWR, intended to select the source offering the greatest overall benefit in response to the requirement.
91 Lowest Evaluated Proposal Price Analysis based on comparing two or more proposals using the Supplier Performance Index (SPI) model.
92 SPI ProcessA formula used to evaluate suppliers’ delivery and quality performance.The model is weighted: 40% SDR (Supplier Delivery Rating) and 60% SQR (Supplier Quality Rating).
93 SPI CalculationThe Supplier Performance Index (SPI) is calculated as follows:Here are some sample calculations:2 – ( SQR * SDR * .40) = SPI100SUPPLIER A – ( ) = 1.012SUPPLIER B – ( ) = 1.030SUPPLIER C – ( ) = 1.120
94 How is the SPI used?PWR buyers use the SPI as the primary factor in their evaluation of supplier proposals for inspected items. The example below illustrates how it works.SUPPLIER A SUPPLIER B SUPPLIER CQUOTED PRICE $1, $1, $1,023.00multiplied by SPIEVALUATED PRICE $1, $1, $1,145.76Supplier A could be selected for the award, even though their quoted price was not the lowest.The closer a supplier’s SPI is to 1.000, our experience indicates, the more likely they will meet PWR’s quality and delivery requirements.
95 Fact-FindingPWR Fact-Finding Questions will be covered in our next sectionCertified cost and pricing data will be discussed in the next section
97 Agenda PWR Price / Cost Analysis Fact-Finding PWR Technical Evaluation of Supplier ProposalsFunding Profiles, Ogives and PTL
98 PWR Price and Cost Analysis Greg ManleyJuly 2009
99 Why Do We Need a Cost Analysis? For government contracts, the Truth in Negotiations Act (TINA), requires the submission of cost and pricing data:When the proposed price is expected to exceed $650,000.When the pricing of a change or modification to a contract exceeds $650,000For commercial contracts a cost analysis is required:To comply with company procedures.Because it makes good business sense.When you start to talk about TINA, be sure to tell the students that this is a government requirement and not all UTC sites are required to adhere to TINA. If your site works on government contracts then you need to know the details of TINA. Check with your local subcontract advisor for additional information about working with TINA.For sites not working on government contracts you need to check with your local subcontract advisor to find out what policies and procedures apply to your site.
100 What is a Price Analysis? A price analysis is the process of examining and evaluating a prospective price by comparing the price with other available pricingTypical price analysis techniques include:CompetitionCatalog/market pricingComparison to other costs (historical, similar-to, in-house estimate, parametric/cost estimating relationships)Value/visual analysisDo a quick review of price analysis. Tell the students if they want more information about price analysis they should take the Price Analysis course.
101 What is a Cost Analysis?A cost analysis is the review and evaluation of the separate cost elements and proposed profit of a supplier’s cost or pricing data.It is the judgmental factors applied in projecting from historical data to the estimated costs to form an opinion on the degree to which the proposed costs represent a fair & reasonable the cost.Both of the above items assumes reasonable economy and efficiency
102 Overall Cost Analysis Process Receive Request for Cost/Price AnalysisPreliminary Fact Find QuestionsStart Field Fact-findingSupport Negotiations as Member of the TeamSupplier SOW DevelopmentReceive Technical EvaluationIssue Cost Analysis PositionDraft & Submit RFP to SupplierRequest DCAA Assist Audit*Introduce the overall process. Details will be discussed on the following viewfoils.Receive Supplier ProposalRequest Technical EvaluationReceive Clarification Responses from SupplierComplete Fact-findingDocumentation Sign-offApprove Cost Analysis Plan (CAP)**Support Pre-negotiation ReviewReceive DCAA Assist Audit Report** Only on Government Contracts** OptionalNote: Some of these tasks will overlap or will be done in parallel with other tasks.
103 DCAA Assist AuditIn the event a subcontractor denies access to their cost & pricing or rate data the Cost Analyst should request DCAA audit or rate verificationThe DCAA audit request is initiated by submitting a request in writing to the cognizant ACO, along with a copy of the subcontractor’s proposal. The request will identify the supplier, contract number and any specific audit needs, i.e. Material, labor hours, rates, etc. or just direct and indirect labor ratesA report will be released by the DCAA to the cognizant ACOThe ACO will release the report to the requesting Cost AnalystThe DCAA’s findings will be utilized in the final cost analysis report.
104 Cost Analysis ProcessThe Supplier Management Agent/Buyer is responsible for:Request cost analysis from the Finance Cost Analysis if thresholds are exceededRequesting additional information from the supplier (as required) to complete a cost analysisSupporting fact find (as required)Responsible for understanding the logic/details of the cost analysis as completed by the cost analystPreparing procurement board/memo for review with management.Before you show this slide, ask the students this question:What is a procurement agent responsible for in the cost analysis process?Show the slide and compare it to the answers the students gave. Did they know all the procurement agent’s responsibilities? Additionally, at different sites the procurement agents may have other responsibilities in addition to the responsibilities shown on the slide. Check with your local subcontract advisor for other responsibilities that may be included as part of your job as a procurement agent at your site.
105 Learning Curve Rate of Improvement 100% curve slope = no learning Robots, 100% automated (very rare)Rate is less when most of the work is done by machines (flatter slope)As a task is repeated, the more efficient the task becomes, due to operator efficiency, tool design, method and process improvements, etcAll areas of the enterprise contribute to the overall performanceMost of learning is due to improvements outside of the individual worker.Some examples are:Improvements in toolingFacilitating engineering changesLean activities (Accelerated Improvement Workshops)Progressive management.
106 Learning CurveThe greater the amount of manual labor, the greater the opportunity for improvement (steeper slope)The steeper the curve slope (lower curve %) the greater the rate of improvement.Example of manual assembly versus work performed by programmed numerical controlled machines—(although improvements can be achieved by improving the efficiency of the program).
107 Learning Curve Determining the Curve Slope First, perform regression analysis of the actual data.If the projection produces an unrealistic answer, the correlation is poor, or you have only one data point, then:Use a force curve using a single data point based on a historical curve slope for a similar item. If no historical slopes are available, then:Then use the following rule of thumb curve slope percentages:Sheet Metal 95%Machining 90%NC Machining 95%Assembly 85%There are published lists of curve slope percentages.A regression analysis requires multiple data points.Must have to have at least one data point on which to apply historical slopes of similar items or “rule of thumb” slopes.The data point used is generally the most recent data point provided that is not contaminated with abnormal problems.
108 Learning Curve Advantages Universal tool Projects continuous improvementUses past performance to project the futureAble to find line of best fitDisadvantagesNeed to be aware of make/buy and process changes.Must have data to develop.Manufacturing problems are included in the historical data base (rework, scrap, etc.)The use of the “Learning Curve” has become almost universal throughout the aerospace industry since the 1930s.Last bullet comment—Do not want to project abnormal problems into the future.
109 Quantity AdjustmentAn attempt to normalize (adjust) the historical data base (as it relates to procurement quantities) to a constant base, in order to account for large changes in quantitiesWhen the item being procured has a large amount of fixed cost or is a common commercial item, then that quantity break is appropriateCurve would be 100% with no fixed costAs fixed cost increases, the curve slope % decreases.This tool accounts for the effect on cost of amortizing fixed costs (setup) over smaller or larger lot sizes.Determine the Curve SlopeWith No Fixed Cost $0 Curve = 100%As Fixed Cost Increases Curve Slope % Decrease
110 MaterialMaterial–purchased items/services which become part of the final, deliverable productFour common categories of material are as follows:Raw material—requires further processing.Subcontracted Items—assembled parts that have been offloaded to another supplier for manufacture.Outside processing.Purchased parts—parts processed from raw material that are bought complete.Define material cost and each of the four categories.Explain the difference between each of the four common material categories.Provide an example of each.Raw material inch Aluminum plateSubcontracted Item Wire Harness assembly off-loadedMachine plate - machine to PWR drawingsOutside processing PaintingDrop testPurchase Part Fuel PumpFlight Computer
111 Material Bill of Material (BOM) The engineering drawings are the source of the BOM.An itemized listing of all the material items/services that are required to build a product.Determine the best value supplier and associated cost for the material item or serves.Typically the BOM is evaluated by validating a sample of the total parts or BOM.Use next viewfoil to explain a BOM.Explain that the source to develop a BOM is based on the Engineering drawing and other engineering documentation in order to determine the requirements.Next you determine if the requirement is a make or buy item/service.Then source selection is conducted to determine best value supplier and the associated cost for the item or serves.Evaluation of BOM.Generally an evaluation or review of BOM is not based on a review of each item in the BOM. It is generally based on a selected sample of items in the BOM and balance of the items are decremented based on the results of the sample.See next viewfoil.
112 Rate Verification Forward Pricing Rate Agreement A written agreement negotiated between a contractor and the government to utilize certain rates or prices during a specified period in pricing contracts or modificationsRepresents reasonable projections of specific costs that may not easily be estimated for, identified with, or generated by a specific contractMay include rates for labor, indirect costs, scrap, obsolescence, etc.
113 Rate Verification Government audits Accounting and/or technical audit performed by a government agencyGovernment accounting audit is requested when PWR does not have audit rightsGovernment technical audit is required when supplier will not provide cost/pricing data to PWR (i.e., Labor hour history).PWR will request a rate or technical audit, only if PWR does not have audit rights.
115 PWR Fact-Find Questions The following data is the standard supporting documentation the Cost Analysis Department requests when certified cost and pricing data is required:A summary description of the operation of the supplier's cost estimating system (New Projects & Existing/Repeat Projects).Cost breakdown based upon supplier's estimating system (Non-Recurring/Recurring-D.L.; Overhead; Material; Other Direct Cost; G&A; Profit, etc.). Provide basis of estimate (actual, history, estimate, etc.) for labor hoursPriced Bill of Materiala. Explanation of method and data used by the supplier in preparing the BOMb. Explanation of contingencies, if any.Explanation of method and data used by the supplier in preparation of direct labor hour forecast for this purchase order.Direct labor hour forecast by month and by unit or lot if respective production is involved.Basis for forecasting direct hourly rates (Engineering, Manufacturing, etc.).
116 PWR Fact-Find Questions Basis for forecasting burden rates (Engineering, Manufacturing, etc.)Actual Burden rates experienced by year for the previous two calendar years.Negotiated burden rates experienced by year for the previous two calendar years and the Government agency with whom such rates were negotiated (i.e. DCAA) - if applicable.Analysis of burden pools by account and by year for the previous two calendar years classified by fixed and variable costs.Total of direct labor hours or dollars expended by year for the previous two calendar years.Forecast of direct labor hours or dollars for the period to be covered by and including the purchase order together with an outline of the basis of the forecast.Actual sales backlog at the beginning of the previous and the current calendar year.Profit substantiation.Was a learning curve applied? What type of curve is used (CUM. AVG. UNIT, etc.)
117 PWR Fact-Find Questions How many hours were proposed for the first unit?Are there any contingencies in supplier's proposal for labor hours?Was there any learning curve applied to material costs?Provide support documentation for "driver" items representing 80% of material cost (i.e. Quote; P.O.; Inventory, etc.)Does proposed material provide for mortality? If so, applicable to all items?Does material cost include a handling charge or other burden application?Are there other contingencies in supplier's proposed material cost? If yes, please describe.Basis for forecasting G&A ratea. Actual G & A rate experienced by year for the previous two calendar yearsb. Negotiated burden rates experienced by year for the previous two calendar years and the Government agency with whom such rates were negotiated (i.e. DCAA) - if applicableExplanation of the difference between a & b - if applicableAnalysis of G & A pools by account and by year for the previous two calendar years classified by fixed and variable costs.
118 PWR Fact-Find Questions Other Cost - Provide documentation to support other cost items if applicable.Does the proposal contain any unallowable cost (FAR: )? If so, please identify.Provide documentation (actual cost or estimated cost at completion) on current or previous PWR procurements of the same or similar item.
119 PWR Technical Evaluation of Supplier Proposals
120 PWR Technical Evaluation Criteria Technical Evaluations of supplier proposals form the foundation for subsequent price negotiationsThe Technical Evaluation consists of an evaluation of the supplier’s technical and cost proposalsThe Technical Evaluation of the supplier’s technical proposal is a comprehensive and responsive evaluation of the criteria set forth in the solicitationThe Technical Evaluation of a supplier’s cost proposal is a review and assessment by qualified technical personnel of the following points:labor mix appropriateness including number of hours and labor category proposed;type and quantities of material proposed;special tooling and facilities proposed; and,reasonableness and appropriateness of proposed other direct costs (ODC’s).
122 PWR Ogive DefinitionAn Ogive is a frequency distribution of numerical dataOgives are normally represented on bell curvesExample: If you are plotting 100 hours on a 20/80 Ogive20 hours (100 x 20% = 20) would fall on the left side of the bell and 80 hours (100 x 80% = 80) on the right sideValid PWR / ProPricer Ogives: 10/90, 20/80, 30/70, 40/60, 50/50, 60/40, 70/30, 80/20, 90/10PWR / ProPricer will spread the data between the start / stop months based on the selected Ogives
124 Background PWR Estimating Systems Manual Termination Liability Topics What is Termination LiabilityTermination Liability FundingTermination CostsTermination Cost Risk CoverageSpecial Termination Cost ClauseEstimating Termination Costs
125 ResponsibilityEstimating and Pricing must work with Contracts/Legal Services and Program Management to ensure that costs resulting from a potential termination are eithera. Included in requested contract funding and submitted in the cost proposal.b. Covered by appropriate contractual language (such as a Special Termination Cost Clause).c. Accepted by management as potentially unrecoverable costs.
126 What is Termination Liability? Termination liability is the maximum amount the Government will reimburse a contractor if a contract is terminated.It includes cost for contract work that has been incurred up to the termination date plus termination cost. In the case of a multi-year contract terminated before completion of the current fiscal year, termination liability includes costs for current year contract work prior to the termination and termination costs for both the current and out years.
127 Termination Liability Funding For incrementally funded contracts, the contractor usually provides the Government an estimate of the funds required to cover the anticipated contract work plus enough funds to cover termination costs (not covered by special contract clauses) for each period of the contract.The Government will allocate funds to the contract for the current contract performance period based on the funding required. Failure of the contractor to adequately forecast termination costs and include them in the funding requirement may result in inadequate funds being made available to cover costs in the event the contract is terminated.If this situation occurs, the contractor may not be able to recover any incurred costs in excess of the funded amount.
128 Termination CostsThere are eight categories of termination costs. Organizations should use these cost categories to help identify potential termination costs in their program and make provisions to minimize the financial risk associated with them. The eight different categories areBefore termination costs.Costs continuing after termination (FAR (b)).Initial costs (FAR (c)).Loss of useful value (FAR (d)).Rental under unexpired leases (FAR (e)).Alterations of leased property (FAR (f)).Settlement expenses (FAR (g)).Subcontractor claims (FAR (h)).
129 Termination Cost Risk Coverage A upcoming chart displays the termination costs that have been historically covered in the PWR termination estimate (calculated by leading labor and material) or by the special termination cost clause. Costs in the potentially uncovered category are not addressed by either of these methods.If a contract has no special termination cost clause, or has significant costs in the potentially uncovered category, then these costs need to be separately estimated and added to the PWR termination liability line values, (see Figure 8.7-1) covered by additional contract clauses, or accepted as potential risks by management.
130 Special Termination Cost Clause Government contracts and RFPs sometimes include a special termination cost clause. This clause recognizes that if the contract is terminated there will be selected termination costs for which the Government will be obligated to provide additional funding. This clause usually contains a not to exceed funding limitation.Special termination costs are defined by Department of Defense (DoD) FAR Supplement Contracting agencies have different variations to the language covering the specific costs included in a special termination cost clause. Be sure to read the contract provisions to determine the costs that are covered by the clause.
131 Estimating Termination Costs Estimating method-leading costPWR typically calculates a termination liability line by leading costs for PWR labor, interdivisional labor, and supplier costs by set periods. Lead times are dependent on the particular circumstances of the individual program. This technique includes in the current funding request, costs for future periods for which PWR may be contractually liable. An example of the approach follows.PWR labor, associated overhead, and other costs are set forward a specific period of time, usually one to three months.The interorganizational costs are set forward a month, similar to PWR costs.Subcontract, supplier, and direct material costs are set forward a specific period of time, usually three months. This offset covers the subcontractor's and suppliers expenditures that have been performed but not yet billed to the prime contractor. For major subcontractors termination liability lines should be requested and compared to the internal calculations. Adjustments to the internal subcontract values should be made if required.
133 PTL Recommendation Document current processes (All) Investigate existing processes (DoD)Develop PTL tools (Review Questionnaire)Review Termination Liability costs with ProgramsDetermine Program Termination Liability costsPrice costs in the ProPricer SystemReview Termination Liability costs with ManagementPresent Termination Liability values to customer
134 PTL Process Description Typical Six Step PTL ProcessIdentify the following elements of PTL for the Program life from the Business Operations Budgeting SystemTotal Expenditures (i.e. MPM/SAP extract)Non Labor Costs, Budgeted value including common budget elements (i.e. G&A, COM and Fee)Labor Costs, calculated (mathematical difference of A less B).Determine PTL valuesIdentify Labor and Non Labor lead values required to provide PTL coverage in months (Burn Rate)Before Termination CostsCosts Continuing After Termination (partial de-staffing only)Subcontractor ClaimsIdentify any PTL Special Termination Cost Clause valuesCosts Continuing After TerminationSettlement ExpenseIdentify any potentially uncover costsInitial CostsLoss of Useful ValueRental Under Unexpired LeasesAlterations of Leased PropertyCalculate a PTL by GFY quarterReview PTL values with Program ManagementReport PTL values to Upper MgmtReview and update PTL values as required
136 Wrapping Up the Proposal Create Draft /Prelim Run of PricingWrite technical proposal based on approved mockupSubmit remaining graphics for login and formattingCheck pricing input for completeness and consistency to proposal planDraft BOEsSubmit preliminary cost data for Pricing/Finance Management ApprovalReview program plan / risk analysis / T&Cs/cost/business plan with approving executives
137 Create Finished Proposal Obtain IPT/process organizations approvals for cost estimates and BOEsAssemble final proposalPrepare briefing/documentation for executive approvalSchedule Repro and Data Management effortComplete technical, management and cost proposal packages with all required backupIdentify/confirm delivery arrangements
138 Proposal SubmittalSubmit for repro with instructions (include backup copies)Verify proposal completeness and prepare for deliveryDeliver to customer
139 Prepare for Orals and Fact-Finding Team prepares for orals (if required)Team responds to CRs & DRs (if any)BAFO follows same steps as abovePM coordinates PA (or other) budget to support post submittal activitiesDevelop BAFO strategy based on above
140 NegotiationsPWR Legal/CA acts as lead to support ALL Negotiation activitiesCoordinate all meeting between customer & RDDocuments all issues and responsesExchanges offers & counter offersSummarize cost impacts for MgmtPM & functions support both as needPricer updates C&P data & coordinates disclosures w/ CAPricer performs sweeps & certs if applicableCA completes memo of negotiation
142 Change Proposals Changes occur for a variety of reasons/scenarios PWR Customer driven changePWR generated changeSupplier generated changeNot all changes require an equitable adjustmentEquitable adjustment can be schedule and/or priceAdjustments can be increasing or decreasingEquitable adjustment changes generally are scope or schedule drivenTerms & Conditions are not re-negotiable
143 Change Proposals Not competitive Scope/schedule changes can be incorporated via an undefinitized change notice (proposal & negotiations to follow)A formal RFQ/RFP may be sent by PWRTINA requirements apply (aggregate value, i.e., $350K increase + $300K decrease = $650K TINA change value)It is not an opportunity to “Get Well.” The equitable adjustment must only consider the impact of the actual change.
144 Change ProposalsPursuant to PO “Changes” clause, supplier obligated to place change notice into work.Proposal & Negotiation Process should be timely (FAR requirement to be complete in less than 180 days – PWR Goal is 120 days)Supplier is obligated to present PWR with a fully documented change proposal within fifteen calendar days of PO change receipt.
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