1. Contract Pricing and Pricing Strategies
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Contract Pricing and Pricing Strategies
Beverly Arviso, CPA, CPCM, CFCM, NCMA Fellow
Arviso, Inc.

2. Planning the Pricing Strategy Understanding the Requirements
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Learning Objectives
Planning the Pricing Strategy
Understanding the Requirements
Cost or Pricing Data
Price Analysis
Cost Analysis and Cost Realism Analysis
Indirect Rates and Competitive Rate Strategies
Best Practices

3. Planning the Pricing Strategy
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Planning the Pricing Strategy
Identify core business areas and what opportunities to pursue
Develop a bid/no bid decision process
Develop a Bid and Proposal (B&P) budget
Start the proposal activity early in the process
Identify the proposal team
Internal and external parties
FAR Limitation on Subcontracting
Teaming Agreements
Non-Disclosure Agreements

4. Planning the Pricing Strategy
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Planning the Pricing Strategy
Develop a proposal schedule
Include due dates for the pricing team
Prepare a compliance matrix
Include assignments and responsible author with clear due dates
Schedule kick-off meeting with teaming partners

5. Understanding the Requirements
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Understanding the Requirements
Obtain a clear understanding of the requirements
Read the solicitation (and read it again, and again, and again…..)
Determine the contract type(s)
Section B, Supplies or Services and Prices/Cost
Section C, Statement of Work
Section L, Instructions, Conditions, and Notices to Offerors
Section M, Evaluation Factors for Award
Clarifications, discussions, and negotiations
Evaluated price vs. proposed price

6. Understanding the Requirements
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Understanding the Requirements
Pricing Policy (FAR )
Contracting Officers SHALL:
Purchase supplies and services from responsible sources at fair and reasonable prices
may require certified or other than cost or pricing data to make that determination
Price each contract separately and independently
NOT 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 COUNCIL
Cost or Pricing Data
Policy on cost or pricing data
Do not obtain more information than necessary
Data collection and preparation is expensive
Order of preference for type of data required
No additional information is needed if the price is based on adequate price competition
Information other than cost or pricing data
(Certified) cost or pricing data

8. Cost or pricing data (defined at FAR 2.101):
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Cost or Pricing Data
Cost or pricing data (defined at FAR 2.101):
Factual, not judgmental and are verifiable
More 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 COUNCIL
Cost or Pricing Data
Cost or pricing data (defined at FAR 2.101):
Include, but not limited to, such factors as
Vendor 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; and
Information 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 COUNCIL
Cost or Pricing Data
Threshold for requiring certified cost or pricing data is >$700,000
Exceptions to certified cost or pricing data
Prices are based on adequate competition
Prices agreed upon are based on prices set by law or regulation
Commercial item acquisitions
When a waiver is granted
When modifying a contract or subcontract for commercial items

11. TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org
Cost or Pricing Data
Other circumstances where certified of cost or pricing data are not required
Exercise of an option at the price established at contract award or initial negotiation
Proposals used solely for overrun funding or interim billing price adjustments

12. Always involves some form of comparison
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Price Analysis
Examination and evaluation of a proposal without evaluating each separate cost element or proposed profit
Always involves some form of comparison
Competition in the market determines the price to be fair and reasonable
Price analysis is required in every acquisition

13. Price Analysis Techniques
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Price Analysis
Price Analysis Techniques
Comparison to other proposals received
Comparison of previously proposed prices for the same or similar items or service
Commercial items or services
Prices set by law or regulation
Catalog prices
Independent Government Cost Estimates (IGCE)

14. Price Analysis alone may not be sufficient for
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Price Analysis
Price Analysis alone may not be sufficient for
Sole source procurements, including FFP
Modifications or changes to existing contracts

15. Cost Analysis and Cost Realism Analysis
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Cost Analysis and Cost Realism Analysis
Cost Analysis
The review and evaluation of separate cost elements and profit or fee proposed to determine a fair and reasonable price or to determine cost realism, and
The 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 COUNCIL
Cost Analysis and Cost Realism Analysis
Cost Analysis Techniques
Verification of cost or pricing data and evaluation of cost elements
Evaluate the effect of the offeror’s current practices on future costs
Compare costs proposed for individual cost elements
Verification 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 offeror
Analysis of the results of any make-or-buy program reviews, in evaluating subcontract costs

17. Cost Analysis and Cost Realism Analysis
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Cost Analysis and Cost Realism Analysis
Cost realism means that the costs in an offeror’s proposal
Are realistic for the work to be performed,
Reflects a clear understanding of the requirements, and
Are consistent with the various elements of the Offeror’s technical proposal

18. Cost Analysis and Cost Realism Analysis
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Cost Analysis and Cost Realism Analysis
Cost Realism Analysis
Examination of proposed costs and/or prices to ensure the price the government will pay is consistent with the required contract effort
Performed on cost reimbursement contracts to determine the most probable cost of performance for each offeror
May 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 COUNCIL
Cost Analysis and Cost Realism Analysis
Two Objectives of Cost Realism Analysis
Determine if the proposed cost/price realistically reflects the effort required to perform the contract
Consider 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 COUNCIL
Indirect Rates and Competitive Rate Strategies
Direct Costs
Direct labor
Subcontract Costs
Travel
Material
Other Direct Costs (ODCs)
Indirect Costs
Fringe
Overhead
General and Administrative (G&A)
Unallowable Costs

21. Indirect Rates and Competitive Rate Strategies
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Indirect Rates and Competitive Rate Strategies
Indirect Rate Calculation = cost pools/allocation base
Pools 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 COUNCIL
Indirect Rates and Competitive Rate Strategies
Indirect Rate Development
Develop estimate on an account by account basis
Identify increases in direct and indirect wages
Identify increases to statutory fringes based on increased wages
Additional 401k, medical, dental, vision, worker’s compensation
Additional office space, dues and subscriptions, training, phones, etc.

23. Indirect Rates and Competitive Rate Strategies
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Indirect Rates and Competitive Rate Strategies
Indirect Rate Development Cont’d
Provide forecast of indirect rates for all years, converted from contractor fiscal year to contract year
Explain how indirect costs and rates are computed
Explain how indirect rates are applied
Provide cost breakdowns, trends, and budgetary data

24. Indirect Rates and Competitive Rate Strategies
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Indirect Rates and Competitive Rate Strategies
Create multiple fringe rates
Create service centers
Create multiple overhead rates
Change from total cost input G&A to value added G&A
Redefine the treatment of costs from indirect to direct
Rate ceilings

25. Read RFP carefully to ensure it doesn’t violate CAS or FAR
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Best Practices
Read RFP carefully to ensure it doesn’t violate CAS or FAR
G&A on travel is allowable if it is consistent with the offeror’s accounting practices
Review solicitation website often for changes
Prepare, update, and delivery proposal using a compliance matrix that is updated as changes to the solicitation are made
Clearly align technical proposal with cost/price proposal

26. TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org
Best Practices
Reduce math errors or inconsistencies in the cost/price proposal by
Using rounding
Use of an independent party to verify cost proposal on a calculator
Negotiate proper subcontract types
Beware of fixed fee dilution
Be audit ready
Due date/time
Pricing resource:

27. Beverly Arviso, CPA, CPCM, CFCM, NCMA Fellow
TIDEWATER GOVERNMENT INDUSTRY COUNCIL
Questions
Beverly Arviso, CPA, CPCM, CFCM, NCMA Fellow
Arviso, Inc.