Introduction to Procurement for Public Housing Authorities Independent Cost Estimates and Cost/Price Analyses Unit 3

Learning Objectives Define: ▫Independent Cost Estimate ▫Price Analysis ▫Cost Analysis Understand how to develop an independent cost estimate, price analysis and cost analysis Understand when/how to use an independent cost estimate, price analysis and cost analysis 2

10 Basic Procurement Steps 1 Develop a Statement of Work (SOW) 2 Complete an Independent Cost Estimate (ICE) 3 Determine rationale for procurement method 4 Solicit & receive quotes/bids/proposals 5 Determine responsive/responsible bidder, as applicable 6 Determine price reasonableness (Cost vs. Price Analysis) 7 Award contract for solicitation 8 Implement contract administration system 9 Close out the contract 10 Maintain records for minimum of 3 years 3

Independent Cost Estimate (ICE ) An ICE is required for each procurement action!* Estimate of goods/services to be acquired under a contract or a modification Purposes: ▫As a yardstick measure in determining price/cost reasonableness ▫For budgetary purposes ▫To help determine procurement method Prepared before solicitation (or modification) ▫*Generally not necessary for micro purchases (< $2,000) ▫If significant period of time elapses or market conditions change between time ICE prepared and offers received, may need to update ICE! 4

Independent Cost Estimate (ICE) In developing the ICE, PHAs may use: ▫Price last paid for similar procurement ▫Catalog price, or other advertised offers ▫Comparison of previous bid prices ▫Personal experience ▫Other historical information ▫Detailed analyses May be developed in-house or using outside parties (or both) ▫When using outside parties avoid conflicts of interest and ensure the outside party does not obtain a competitive advantage from advance knowledge of the cost estimate 5 An ICE is required for each procurement action!

Price Reasonableness Prior to making an award, a PHA must support the award by documenting that the price/cost for the goods or services is reasonable! Either a Price or Cost Analysis is always required! ▫Amount and type of purchase or acquisition determines the degree of analysis ▫Performed on the apparent low bidder ▫Usually the force of competition is adequate to allow price reasonableness determination based on simple comparison of offered prices The ICE developed prior to issuing the solicitation should always be used as a reference ▫Can help determine need to verify bids or negotiate competitive proposals 6

Price AnalysisCost Analysis Simple comparison of prices when competition is adequate More detailed analysis of component parts when competition is inadequate 7

Price Analysis A simple comparison of the prices quoted by suppliers, contractors, etc., to each other and to the ICE or to other information. Typically used for Micro or Small Purchases, Sealed Bids and simple Competitive Proposals when only the price paid is the determining factor and “fair” competition is present. ▫Usually 3 or more offers or quotes is adequate competition Once the Contracting Officer determines that the prices quoted or offered in response to the solicitation are reasonable, the PHA can award the solicitation to the lowest bidder/offeror. 8

Price Analysis: Making the comparison Small Purchase Procedures ▫Bids to each other ▫Bids to ICE ▫Bids to other sources of pricing, including:  Previous purchases, current price lists or catalogs, or ads ▫For micro purchases, need only compare quotes received 9

Price Analysis: Making the comparison Sealed Bids ▫Bids to ICE (if adequate competition, e.g., >3 offerors) ▫If insufficient competition, (e.g., < 3 offerors) use:  Prior historical prices (consider inflation), published catalog prices or current market price, or third-party estimate Simple Competitive Proposals ▫Bids to bids ▫Bids to ICE ▫If insufficient competition, (e.g, 2 offerors) use:  Prior historical prices (consider inflation), published catalog prices or current market price, or third-party estimate 10

Cost Analysis A detailed evaluation of the separate elements that make up the total proposed cost or price The review and evaluation of each element of cost is to determine its reasonableness, allocability and allowability ! ▫Reasonable per market prices or other data, Allocated proportionally to each category, and Allowed for the contract being sought. Used mostly for complex Competitive Proposals and for Noncompetitive Proposals 11

Cost Analysis Required when… ▫Price is not the determining factor for the award, ▫There is no competition in the marketplace, ▫There is inadequate competition and alternative means cannot be used,  e.g., comparison to prior prices for the same or similar items/services or to competitive price lists/indices or to professional estimate ▫There is a contract modification that changes the scope and impacts price, or ▫Prices vary widely (from the ICE) Once the Contracting Officer determines that the prices quoted or offered in response to the solicitation are reasonable, the PHA can award the solicitation to the lowest bidder/offeror. 12

Cost Analysis… …For Example Work item: New Roofing ▫Break down the price into its components of cost ▫Examine each item of cost  Materials, such as plywood, nails, felt, asphalt shingles;  Equipment, such as cranes, dump truck; and  Labor costs for the size of the job at hand, such as hauling asbestos debris out. 13

Remember… An ICE is required for every procurement action prior to solicitation All awards must be supported by documenting price/cost reasonableness prior to award ▫Price Analysis  Simple comparison of prices when competition is adequate ▫Cost Analysis  More detailed analysis of component parts when competition inadequate 14

References 24 CFR 85.36(f) PHA Procurement Handbook REV 2 - ▫Chapter 3.2 ▫Chapter