1 Pricing your Product or Service Florida Gulf Coast University Small Business Development Center Procurement Technical Assistance Center

2 Objectives Cost Cost Realism Price Price Analysis Profit

3 References FAR 14 Sealed Bidding FAR 15 Contracting By Negotiations FAR 16 Type of Contracts FAR 30 Cost Accounting Standards Administration FAR 31 Cost Principles and Procedures FAR Appendix B Cost Accounting Rules (Down Load as a PDF file) Federal Acquisition Regulations

4 Methods of Procurement Sealed Bids (Price only) Invitation For Bid (IFB) Negotiated (Price or Cost) Request For Quote (RFQ) (Price only) Request For Proposal (RFP) (Price or Cost Data)

5 What is Cost? Cost is the expense the contractor will incur in performing the work

6 Cost Criteria: Reasonable, Allowable and Allocable Variable, Fixed, and Semi-Variable Direct and Indirect

7 COST CONTRACTS Cost-Plus-Fixed Fee Cost-Plus-Award Fee Cost-Plus-Incentive Fee Cost-Sharing

8 THREE BASIC Cs FOR COST TYPE CONTRACTS Know your Costs Know your Customer Know your Competition

9 What will the Government Pay? The Government will reimburse the contractor to do the work as long as the costs are allowable, reasonable, and properly allocable to the contract.

10 What are the Cost Elements? (Your Company) Direct Labor Overhead Material Subcontractors General and Administrative Travel Profit

11 1) Overhead may Include: Cost of Doing Business ! ! ! ! ! Taxes Federal Taxes Social Security Taxes (FICA) Employer portion Medicare Taxes Property Taxes Licenses State Licenses County Business Licenses

12 2) Overhead Continued: Fringe Benefits: Employee Health Insurance Annual Leave Sick Leave Family Leave Retirement

13 3) Overhead Continued: Office Space Furniture Electricity Air Conditioning Heat Equipment Copiers Computers Phones

14 4) Overhead Continued: Utilities: Sewage Waste Water Treatment Trash Removal Recycle Program

15 5) Overhead Continued: Insurance: Building Car Truck Workers Compensation Contract agreements: Credit Cards Bldg. Maintenance Lawn Service Depreciation Interest on Loans

16 What are the Cost Elements? (State) Salaries Fringe Benefits Travel Other Direct Costs In-House Charge Indirect Costs Profit

17 Build a Cheeseburger?

18 Base Line for the Cheeseburger One made every 30 seconds, start to finish Includes: Direct Labor Overhead Material Profit

19 Direct Labor- ½ minute labor $ minute labor $ 00.30

20 Overhead is 100%

21 Materials Build a cheeseburger starting at the bottom –Bun Bottom –Mayonnaise –Mustard –Patty –Cheese –Pickle –Lettuce –Tomato –Ketchup –Sesame Seed Bun Top

22 Materials

23 + Materials

24 Cost Elements for the Cheeseburger? Direct Labor $ 0.15 Overhead 100% $ 0.15 Material $ 0.71 Subtotal $ 1.01 Profit 10% $ 0.10 Total Cost $ 1.11

25 What is Total Cost? Cost Elements + Profit = Total Cost

26 Cost Realism Cost and Technical proposals must be realistic for the work to be performed Reflect a clear understanding of the requirement Cost must be consistent with the various elements of the technical proposal

27 PROFIT Represents the payment the contractor may receive for performance over and above the costs incurred for doing the work. Contractor/ Government Risk

28 Profit Statutory Limits Cost Plus Fixed Fee 10% Research and Development Cost Plus Fixed Fee 15% Architect and Engineering Services 6%

29 What is Price? Cost Elements + Profit = Price

30 What is the Price for Your Service? Direct Labor $10.00 (Unloaded Rate) Overhead $15.00 Est. 150% Material $ 3.00 Subtotal $28.00 Profit $ % Total Price $30.80 (Loaded Rate)

31 Profit Factors for FFP Contracts Market Competition Contractor Risk 100%

32 Sales -Direct Cost -Indirect Cost = Net Profit Are You Making a Profit ?

33 Price Analysis Process of examining and evaluating a proposed price without regard to evaluating the separate cost elements and proposed profit.

34 Firm-Fixed-Price with Economic Adjustments Indefinite Delivery Contracts Time and Material Labor Hour Letter Contract Firm Fixed Price Contracts

35 Price must be Fair and Reasonable Based on a) Adequate Price Competition b) Previous Prices c) Yardstick d) Published Prices or e) Independent Government Estimate

36 Tips 2080 Hours = Gov Staff Year Loaded/Unloaded Rates Separate Technical and Cost Proposals Best Value Awards DCMA- Direct Labor Rates Overhead G&A (For a Specific Company)

37 SUMMARY Cost Cost Realism Price Price Analysis Profit

38 Thank You Contact Dan Telep at SBDC/PTAC