1. Business Proposal Evaluation
FDA Business Management Team

2. Agenda Reasons for Business Analysis Common Definitions
Common Business Proposal (SB) Issues
Price Analysis
Exercise 1
Cost Analysis
Exercise 2
Technique Determination & Other Considerations
Possible scenarios
Business Analysis Report Outline
Pivot Table Demonstration
Questions

3. Evaluation / Source Selection Success Reduce Risks of Protests
Training Goals
Desired Outcomes
Understand the process and methodology in performing business analysis
Selecting the correct technique for analysis for respective contract action
How to apply each technique to the analysis
Evaluation / Source Selection Success
Reduce Risks of Protests
Obtain the Best Value

4. Reasons for Business Analysis
WARNING! FAR Cites Ahead!
FAR (a) – Pricing Policy states
The contracting officer shall purchase supplies and services from responsible sources at fair and reasonable prices.
FAR (c)(1) states
Price or cost shall be evaluated in every source selection.
Contracting Officers and Contract Specialists are business advisors
Assist customers to make good business decisions.
Be prudent but fair with contractors.

5. Importance of Solicitation Language
Brain teaser – Which takes precedence, the FAR or the Solicitation?
The FAR States
Review Solicitation Language Carefully
Separate and Independent
Analysis must be performed in accordance with the solicitation language to avoid protest FAR (a).
Shall evaluate competitive proposals and then assess their relative qualities solely on the factors and subfactors specified in the solicitation – FAR (a).
Proposal instruction - Section L
Evaluation factor - Section M
Price each contract separately and independently (b).
Do not use proposed price reductions under other contracts as an evaluation factor; or consider losses or profits realized or anticipated under other contracts.

6. Common Definitions
Fair – Fair market value, reasonable profit for offeror.
Underbidding, usually in a competitive environment
Overbidding, Sole-source & Competitive environments
Realism - whether the estimated proposed cost elements are realistic for the work to be performed, FAR (d)(1).
Reasonableness - Does not exceed that which would be incurred by a prudent person in the conduct of competitive business, FAR
Used car example for reasonableness and realism

7. Common BA Issues - Small Businesses FDA Specific
SB Cost Proposal Considerations
Gov’t must verify that SB Offerors have an adequate accounting system for any cost-type proposal (FFP exempt)
Verification must be based on an independent Gov’t accounting system audit
Absence of assumptions
Can result in confusion / misunderstanding between Industry and the Government
Small Business vs. Large Business
Pricing
At times small businesses do not provide a basis for their proposed pricing
Consequently this makes it difficult for the Gov’t to determine if prices are fair, realistic, and reasonable.
Labor Rates (LRs)
Small businesses have a greater tendency to propose LRs not aligned to commercial rates (i.e. GSA Schedules)

8. Common BA Issues - Small Businesses General
Mentor-Protégé program not widely understood
Mentor may be treated as subcontractor with a misunderstood 50% performance requirement though SBA has not expressly set a performance requirement. This is supported by allowing the Mentor to create a JV and perform as a Prime.
FAR Price evaluation preference for HUBZone
The contracting officer shall give offers from HUBZone small business concerns a price evaluation preference by adding a factor of 10 percent to all non-HUBZone offers.
Responsibility Determination
CO may defer to SBA for the “Certificate of Competency”. However, Small Businesses can provide this in response to the RFP => reduces overall processing time.

9. Sample Solicitation Language
“The evaluation of cost reasonableness and realism analysis will consider the extent to which proposed labor hours, labor mix, and labor rates indicate a clear understanding of the first task order requirements, reflects a sound approach to satisfying those requirements, and is consistent with the approach described in the Offeror’s technical volume proposal. This assessment will consider technical and management risks identified during evaluation of the business proposal. Unrealistically low proposed rates/hours (initially or subsequently) may be grounds for eliminating a proposal from competition on the basis that the Offeror either doesn’t understand the requirement or has made an unrealistic quote.”
What MUST be evaluated and documented based on the solicitation language?

10. Price Analysis Techniques
Price analysis shall be used when certified cost or pricing data are not required - FAR (b)  note the different FAR cite!
Key of Price Analysis
Price Analysis Techniques
Comparison of proposed prices with independent Government cost estimate (IGCE).
Comparison of the proposed prices to historical prices paid.
Use of parametric estimating methods/application of rough yardsticks.
Comparison with competitive published price lists.
Comparison of proposed prices with prices obtained through market research for the same or similar items.
Analysis of data other than certified cost or pricing – can be very useful.
Differences of Price vs Cost
Evaluated without reviewing separate cost elements of a proposal.
Price analysis should be used to verify that the overall price offered is fair and reasonable.
FAIR and Reasonable normally established by adequate price competition.
FAR (b)(2)(i)
Taking over work mid-stream,

11. Price Analysis Exercise (1)
A requisition is received for 1,000 first-aid kits for an emergency planning exercise. The kits must be Occupational Safety & Health Administration (OSHA) compliant and received within 21 days. Who would you award the delivery order to?
Offeror 1
Offeror 2
Offeror 3
Offeror 4
Offeror 5
Delivery Time
20 days
30 days
OSHA Compliance
Yes No
Small Business
T/C Exception
None
Unit Price
$68
$70
$77
$79
$80
Volume Discount 4% 5% 7% 6%
Extended Price x 1,000 Units
Please Calculate
Payment Terms
1%/20 days,
Net 30 days
5%/15 days,
Net30 days
3%/15 days,
Net 30 day
2%/10 days,

12. Price Analysis Exercise (2)
Offeror 1
Offeror 2
Offeror 3
Offeror 4
Offeror 5
Delivery Time
20 days
30 days
OSHA Compliance
Yes No
Small Business
T/C Exception
None
Unit Price
$68
$70
$77
$79
$80
Volume Discount 4% 5% 7% 6%
Extended Price x 1,000 Units
$65,280
$66,500
$71,610
$73,470
$75,200
Payment Terms
1%/20 days,
Net 30 days
5%/15 days,
Net30 days
3%/15 days,
Net 30 day
2%/10 days,
After Payment Discount
$64,627
$63,175
$71,266
$73,696
After payment discount Offeror 2 has the lowest proposed price, but what is the risk for the Government?
Why do some vendors offer payment term discounts?

13. Key of Cost Realism Analysis Cost Realism Analysis Techniques
The process of independently reviewing and evaluating specific elements of each Offeror’s proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed - FAR (d)(1)
Key of Cost Realism Analysis
Cost Realism Analysis Techniques
Perform a technical analysis of the proposed types and quantities of materials, labor, processes, etc..
Examine the types and quantities of labor and material proposed.
Evaluate pricing related to similar or commercial items requiring minor modifications to determine magnitude of changes.
Compare Government’s “probable” cost of performance with each offeror’s proposed costs to determine best value
Must be performed on all cost reimbursement contracts.
Process of evaluating the methodology used by the offeror (contractor) to estimate proposed costs.
Use information other than cost or pricing data to evaluate – FAR (a)(4)
Similar to a cost analysis, less extensive and not as exact.

14. Cost Analysis Techniques
Review and evaluation of any separate cost elements and profit or fee in an Offeror's proposal, as needed to determine a fair and reasonable price or to determine cost realism, and to determine how well the proposed costs represent the contract - FAR (c)(1)
Key of Cost Analysis
Cost Analysis Techniques
Comparison of costs proposed by the offeror for individual cost elements with:
Actual costs previously incurred by the same offeror
Previous cost estimates from the offeror or from other offerors for the same or similar items.
IGCEs.
Forecasts of planned expenditures.
Other cost estimates received in response to the Government’s request.
Review to determine whether any additional cost data or pricing data, necessary to make the Offeror's proposal suitable for negotiation.
Must be performed on sole- source contracts.
More laborious than price analysis and cost realism analysis.
Similar to a cost realism analysis, but more extensive and more exact.
Taking over work mid-stream,

15. Key Cost Elements – Direct Costs
Labor hours that are direct support and within scope of the contract.
Proposed labor should be based on the requirement
Hours and rates clearly shown by specific category.
The annual hours that vendor used to define an FTE should be reviewed
Direct Labor
ODC/Material
Costs used in direct support of the contract and may include:
Subcontractor costs
Consultant costs
Lease of equipment
Computer Hardware
Software licenses
Item descriptions, quantities and cost estimates can be obtained using catalogs, price quotes, historical data, etc..
Emphasis in estimating ODCs is accuracy in type and quantity
Travel costs, including airfare, per diem, etc.. may be allowed in direct support of the contract.
Details should be requested if travel cost is expected to be a factor
The contractor may not have to adhere to the JTR if such language is not included in the contract
G&A may be assessed on travel costs.
Travel

16. Full-Time Equivalent Example
Productive Hours Calculation Example: Starting Point 2,080 hours Less: Holiday 80 hours Annual Leave 80 hours Sick Leave 40 hours Training, misc. 40 hours 240 hours Productive Hours: 1,840 hours
OAGS asks for all key elements for all contract types
*Sample calculation. Productive hours varies depending on individual vendor accounting systems.

17. Key Cost Elements – Indirect Costs (1)
An indirect rate for the purpose of allocating items such as:
Health insurance
Payroll taxes
Holiday and vacation time
Pension & etc..
Fringe rate is applied to total direct labor proposed. The rate may vary significantly from vendor to vendor
Fringe Benefits
An indirect rate that pertains to a department or cost center that benefits two or more projects/contracts such as:
Depreciation
Indirect labor
Telephone and computers etc..
Usually structure related
OH rate is applied to total direct labor only or total direct labor plus fringe benefits*
Overhead
Material Handling
An indirect rate that pertains to activities such as:
Salary for administrative assistants
Human resource department
Usually activities related and benefits the entire company/cost center
G&A rate is applied to total direct labor plus fringe benefits, overhead, material handling (if applicable), and all direct costs.
G&A
An indirect rate that usually applies to ODC/Material costs.
Typically a rate significantly lower than the G&A
For newer companies and/or small businesses, sometimes the G&A rate is used. Verify through proposal and billing consistency
MH costs may include appropriate indirect costs allocated to direct materials based on contractor accounting procedures and must not include any fee or profit
Material Handling rate is typically applied to all ODC and Material costs.

18. Key Cost Elements – Indirect Costs (2)
FCCM
Note: Each vendor may apply their indirect rate differently based on how their accounting system is set up.
Important Note!
Facilities Capital Cost of Money
Facilities capital cost of money is an imputed cost related to the cost of contractor capital committed to facilities
Calculated by multiplying the net book value of the business-unit's facilities investment by a cost of money rate based on the interest rates specified semi-annually by the Secretary of the Treasury under Public Law 92-41
Usually not a significant cost and profit is not allowed

19. Fully Burdened Rate Build-Up Example
Labor Category
IT Specialist 1
Rate
Calculation
Direct Labor Rate
$26.83 A
Fringe Benefits
$8.05 B
30%
B= A x 30%
Overhead
$12.21 C
35%
C= (A+B) x 35%
G&A
$6.59 D
14%
D= (A+B+C) x 14%
Profit
$3.76 E 7%
E = (A+B+C+D) x 7%
Fully Burdened Hourly Rate
$57.44 F
F = Sum of A, B, C, D, E
*All indirect rates used herein are fictitious and for demonstrative purposes only
For this example, the total burden to direct labor is approximately 114%

20. FAR 15.404-4(c) – Profit states
Key Cost Elements - Fee
Question – What determines the level of fee rate/%?
FAR (c) – Profit states
CPFF fee is limited at 10% - FAR (c)(4)(i)(C)
CPFF fee is limited at 15% for R&D requirements- FAR (c)(4)(i)(A)
FAR does not provide specific guidance on fee for fixed-price and other cost reimbursement contracts, but competition can help the determination.
HHSAR provides detailed guidance on a structured approach for establishing profit objective for negotiation.
CPFF fee is limited at 10% - FAR (c)(4)(i)(C)
CPFF fee is limited at 15% for R&D requirements- FAR (c)(4)(i)(A)
Typically, the fee rate/% is dependent on the amount of risk, market factors, and any other unique factors that may affect the operation or location of the effort.

21. Cost Realism Analysis Exercise (1)
OAGS is contracting for 1 year of computer server maintenance services. A CPFF contract is intended. Assuming all Offerors are technically equal and acceptable,
Who appears to be underbidding?
What adjustments need to be made for cost realism analysis?
Who offers the best value?

22. Cost Realism Analysis Exercise (2)
Offerors’ Proposed Costs
Cost Element
Offeror 1
Offeror 2
Offeror 3
Direct Labor
IT Specialist I
$60,000
$55,000
$65,000
Program Analyst II
$75,000
$70,000
Computer Engineer II
$90,000
$80,000
$85,000
Project Manager
$100,000
$95,000
Subtotal
$325,000
$290,000
$315,000
Fringe Benefits
$130,000
40%
$101,500
35%
$129,150
41%
Overhead
$182,000
$137,025
$168,777
38%
$637,000
$528,525
$612,927
Material
$57,500
$48,000
Travel
$4,000
$3,500
$5,000
Total Cost Input
$701,000
$589,525
$665,927
G&A
$77,110
11%
$58,953
10%
$79,911
12%
Total Cost
$778,110
$648,478
$745,838
Profit
$54,468 7%
$19,454 3%
$89,501
Total Price
$832,578
$667,932
$835,339
Assumptions
1. FTE based on 1880 hours 2. Material includes warranty
1. FTE based on 1840 hours 2. Material includes warranty
1. FTE based on 1920 hours 2. Material excludes warranty

23. Cost Realism Analysis Exercise (3)
Labor Costs adjusted based on 1 FTE = annual hours
Governments’ Probable Costs
Cost Element
Offeror 1
Offeror 2
Offeror 3
Direct Labor
IT Specialist I
$60,000
$56,196
1.022
$63,646
0.979
Program Analyst II
$75,000
$66,413
$68,542
Computer Engineer II
$90,000
$81,739
$83,229
Project Manager
$100,000
$91,957
$93,021
Subtotal
$325,000
$296,304
$308,438
Fringe Benefits
$130,000
40%
$103,707
35%
$126,459
41%
Overhead
$182,000
$140,004
$165,261
38%
$637,000
$540,015
$600,158
Material 0%
$57,500
$57,600
 20%
Travel
$4,000
$3,500
$5,000
Subtotal Cost Input
$701,000
$601,015
$662,758
G&A
$77,110
11%
$60,101
10%
$79,531
12%
Total Cost
$778,110
$661,116
$742,289
Profit
$54,468 7%
$19,833 3%
$74,229
Total Price
$832,578
$680,950
$816,517
Assumptions:
1. FTE based on 1880 hours, offeror 1 not adjusted 2. Material warranty is estimated at 20% for Offeror 3 3. Profit adjusted to 10% for Offeror 3 as this is the max fee for CPFF
Material Warranty estimated at 20% for Offeror 3
Fee adjusted to 10% for Offeror 3

24. Key Cost Elements – Direct Costs
Most significant element that drives the overall cost in most cases
Direct Labor
Proposed labor should be based on the requirement.
Hours and rates clearly shown by specific category.
Full-Time Equivalent
(FTE)
From vendor to vendor, review the hours for a FTE carefully.
Caution - each vendor may define an FTE differently based on their business practices and accounting system.
A FTE is calculated from total available hours:
40 hours/week, 52 week in a year = 2,080 hours
Use 2,080 hours as the base and deduction of the following: vacation days, sick leave, holidays and training allowance etc., which defines the actual FTE for the vendor.
Calculated “productive” hours can vary based on how each vendor accounts for their indirect activities. i.e. Some vendors may observe 8 Federal holidays or does not allocate hours for training.

25. Technique Determination
The analysis technique is generally determined based on contract type and can be confirmed by the necessity of certified cost and pricing data. Note: BMT uses a hybrid technique, which includes Price Analysis and Cost Realism.
Certified Cost or Pricing
Data (a)(2)
Contract Type
Technique
Selection
Technique Determination
Fixed-Price Contract Actions
FFP / FPIF - cost realism & price analysis
Sole-source – cost analysis
Cost Reimbursement Contract Actions
Competitive - realism, (lower LCAT mix, fee rate) vs. cost analysis for sole-source (higher LCAT, fee)
Price analysis when not required – FAR (a)(2)
Under SAT
Adequate competition (c),
Price set by law or regulation (i.e. public utility)
Commercial items
HCA Waivers
Cost analysis when required – FAR (a)(3)

26. Scenarios and possible technique
Type of Contract Action
Possible Technique
Reason
GSA/FSS Schedule
Price Analysis
Competition, Commercial Item
BPA
Cost Realism, Price Analysis
CR for Base, PA for calls
Competitive Solicitation, including Set-Aside
Depending on Contract Type
IDIQ/Multiple award
GWAC/NIH NITACC
Sole-Source over SAT (including single source directed 8(a))
Cost Analysis
No Competition, Certified CP data required (TINA $700K)

27. Other Important Considerations
Review each assumption in a proposal carefully as they may have significant cost impact. i.e. “Assuming software licenses will be provided by the government with annual renewal.”
Proposal Assumptions
Ensure all required documents are submitted (adherence to Section L).
Check for math errors and all other inconsistencies.
Pricing information is included for all contract years.
Review Proposals in Detail
If you feel something is wrong, peel the onion!
Why is a proposal particularly high or low?
Put yourself in the shoes as the decision-maker. What would help you make a decision?
Trust Your Instinct
In reviewing the proposals, including the proposal assumptions, document every finding that may impact the proposed price or cost.
Incomplete submission or missing section
Calculation errors
Assumptions that may have price or cost impact
Prepare a list of findings that can be used for clarification.
Document! Document! Document!

28. Appendix Sample Report Structure
Using Microsoft Excel Pivot Table for analysis

29. Business Analysis Report – Sample Structure
Background (reference RFP)
Evaluation Methodology (reference RFP & FAR)
Competition Adequacy (reference RFP & FAR)
Evaluation Findings (IDIQ / Task Order)
Price Analysis
Cost Realism Analysis (labor rates)
Level of Effort (LOE) Analysis
Hours and/or FTEs
Issues and Clarifications
Assumptions reviewed (reasonable / realistic)
Summary

30. PIVOT Table Demonstration

31. Questions?!
Contact Information:
Andrew D. McKenna
Phone: