1. Contracting Officer Podcast Slides
Knowledge & Insights From Contracting Officers

2. What are Weighted Guidelines?
Episode 022
What are Weighted Guidelines?
Original Air Date: April 12, 2015
Hosts: Kevin Jans & Paul Schauer

3. Formatting notes
Hyperlinks: Blue font indicates hyperlinks – presentation must be in ‘Slide Show’ mode to activate the link
Red bold font indicates a point of emphasis
Green bold font indicates CO’s personal comment or perspective

4. Introduction: What does the FAR say about ‘Profit?’
It is part of a contract
FAR (a)(3) – Both the Government and contractors should be concerned with profit as a motivator of efficient and effective performance.
Negotiations aimed merely at reducing prices by reducing profit, without proper recognition of the function of profit, are not in Government’s interest.
Negotiation of extremely low profits, use of historical averages, or automatic application of predetermined percentage to total estimated costs are not proper motivation for optimum contract performance.

5. When Do Weighted Guidelines Apply
On non-competitive actions over the CCPD limit of $700,000:
Includes both sole source contracts and modifications to current contracts
FAR (b)(1) requires a “structured approach” to negotiate profit
In DoD, Weighted Guidelines is the approach used (per DFARS )
FAR (b)(2) - “Agencies may use another agency’s structured approach.”
Other agencies use it too (DoE and NOAA reference it)

6. What is “a Structured Approach?”
“Structured Approach” means using a process with some basic, common elements to negotiate profit
FAR (d)(1) – Profit-analysis Factors (required)
(i) Contractor Effort.
Complexity of the work and resources required for contract performance
Provide greater profit opportunity under contracts requiring a high degree of professional and managerial skill, and/or…

7. What is “a Structured Approach?”
Contractors whose skills, facilities, and technical assets will lead to efficient and economical contract performance.
(ii) Contract type risk. Compensate contractors for assuming more risk
Listen to Episode 009 for contract type risk discussion
(iii) Socioeconomic programs: SBs, WOSBs, VOSB, HUBZone, SDVOSB…
“Greater profit opportunity should be provided contractors that have displayed unusual initiatives in these programs.”

8. What is “a Structured Approach?”
What does that mean? It says “should”…so you decide!
(iv) Capital investments - in efficient and economical performance
(v) Cost control and other past accomplishments - Gives contractor credit for a history of cost control)
(vi) Independent development: Did Government recover any price reductions or other benefits from something the contractor did not charge for?
(2) “Additional” factors as identified by each agency

9. What are “Weighted Guidelines?”
Form DD 1547, “Weighted Guidelines Application”
It is the “process” (80/20 rule) that is essentially a formula-laden spreadsheet that gives the CO a ‘negotiation objective’
It is a nifty tool, but like many tools in a thinking profession, it can be massively frustrating to get it to fit the circumstances

10. “Weighted Guidelines” Baseline
Step 1: CO loads the contractor’s costs elements into the spreadsheet:
Material, Subcontracts, Labor, Indirects, ODCs, G&A, etc.
These are summed for a “Total Costs”
Step 2: CO enters the Profit Factors
This is a “thinking step” w/in their formulas
Balance Technical vs. Management/Cost Control (they total 100%)

11. “Weighted Guidelines” Baseline
Contract type risk factors (judgment within ranges)
Examples:
FFP = 4.0% - 6,0%
FPI with Performance Based Payments = 0.5% - 3.5%
CPFF and T&M = 0.0% - 1.0%
Facilities Capital Employed (Land, Buildings, Equipment) – see DFARS

12. “Weighted Guidelines” Baseline
Cost Efficiency Factor – see DFARS
NOTE: A special factor provides incentive for contractors to reduce costs
To the extent that the contractor can demonstrate cost reduction efforts that benefit the pending contract, the CO may increase the pre-negotiation profit objective by up to 4%
Step 3: Negotiate with Contactor based on the results
NOTE: We have a screencast of this for Skyway Community members

13. When does Weighted Guidelines happen?
Acquisition Time Zones
(from Podcast Episode 003)
Requirements Zone
Market Research Zone
RFP Zone (proposal zone)
Source Selection Zone
NOTE: Weighted Guidelines are only used when competition does not exist.
They are intended to be a hassle
Competition is the gold standard for establishing “fair and reasonable price”
In case of emergency, break glass and use Weighted Guidelines

14. Why Should Government Care?
Book answer:
FAR says so: Need to get a Fair and reasonable price
Our answer:
How do you know that profit is reasonable?
Definition of “fair” with no competition is very difficult
Is 10% “fair?” 20% ? 50% ?

15. Why Should Government Care?
In open commercial market, fair is what people will pay so long as they want to buy it.
Since a sole source contract is being negotiated:
The “want it” decision is already made.
You now need to negotiate the deal
Weighted Guidelines help – It is not perfect, but what is….?
Use the tool to get the deal done

16. Why Should Industry Care?
Book answer:
FAR says so
Same as the CO – See FAR and DFARS
Our answer:
CO cannot just pick a profit rate and move on: Weighted Guidelines (or similar) require they consider certain factors
If you are unfamiliar, check out DFARS /71

17. Why Should Industry Care?
In open commercial market, fair is what people will pay as long as they want to buy it
Not here: US Taxpayer gets a vote through the “structured process”
Object to these rules?
Go sell in the commercial market where people rarely “need” things that are sole source
Instead, they “want” these things, and will pay only as much as they want to pay

18. Summary
Weighted Guidelines are a “structured approach” to calculating profit
Profit rates cannot be arbitrary
CO must determine prices to be fair and reasonable
Government must factor profit as a motivation when negotiating

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