CON170 For Exam

Types of Discount Rates CON170

- my own - nominal (incl cost of borrow and inflation) most often used - real (just cost of borrowing). is adjusted for inflation

Fixed Price Incentive (Firm Target) CON170U3

- negotiated elements: Target cost; Target Profit; Ceiling Price; Profit Adjustment formula - final cost less than target cost result in greater profit - contractor has incentive to control costs - no ceiling or floor on profit. just total price - uses (applications): when you want contractor to share risk. guarantee delivery of product. - the price ceiling is the maximum dollar liability of govt - contractor subject to default clause bc is a fixed contract - contractor shares losses in over run, gets good profit in under run; and still must deliver - see page 79 U3L1 - if final cost is less than target cost, KR gets more profit

Contract Funding Policy CON170 U3L4

- no authorization of obligation in excess of funds available or in advance of appropriations - KO needs to obtain written assurance from responsbile fiscal authority

Alternative Liquidation rate Method

pg 30 L3U2

PBPs vs Progress Payments

pg 49 U3L2

Fee Determining Official

pg 53 (determines how much $$ in award fee pool the KR will earn in evaluation period)

Performance Monitors

pg 54

In a cost reimbursement contract, how is a contractor paid his costs and fee?

by invoice

Rule of Thumb

cost to produce plus mark-up. - leader/follower price setting - ignores uncertainties in market. -easier to use and understand - easy for buyer to get info - eg: painter who prices his jobs like competitors with a 45% to cover insurance + profit - eg: small airlines following big airlines

Point of total Assumption

defined page 42 U3L1

Cost-plus (market Penetration):

determine minimal acceptable price. - starts at low unit price to get into the market then adjusts price. -Discourages would be competitors bc price no good. - difficult for buyer to know if price is rational -eg: computer printer

Can COs insert "installment payments" as a form of commerical financing? How does CO determing customary financing practices

dfars 232.206)9)

Commercial forecasting firms

eg: Global Insight -Industry or trade publications (good for general forecasts of economic condistions) -Newspapers

Different Market Structures Con 170 U2

Fewest Sellers Monopoly Monopolistic & Oligopolistic Effective Competition Perfect Competition Effective Competition Oligopsonistic Competition Monopsony Fewest Buyers

List Contracts by Govt Risk (min to high)

Firm Fixed Price Fixed Price with EPA FPRR FPPR FPIF FPIS CPIF FPAF CPAF CPFF

Policies for Selecting Contract Types for each type of Govt Bidding

Sealed Bidding: must be firm-fixed price or fixed-price w/EPA By Negotiation: may be any type - a determination and findings must be executed in advance of a contract being awarded

Drivers CON170

the independent variables for a CER. eg: Shipping: the drivers are distance, weight, speed. General Supplies: Quantity, rush delivery Aircraft: distance, speed, weight

Drivers CON170

the independent variables for a CER. eg: Shipping, the drivers are distance, weight, speed.

Applications and limitations for FPRR

FAR 16.206 (appli and limitations

Applications and Limitations of Fixed-Price Level of Effort

FAR 16.207

Award Fee Plans must

FAR 16.401(e) (ii thorugh v)

Applications and Description and limitations of Fixed-Price Incentive (Successive Tragets)

FAR 16.403

Applications and Limitations for Fixed Price Incentive (Firm Target)

FAR 16.403-1

Cost Reimbursement Incentive-Fee Contracts Applications and Limitations

FAR 16.405=-

Determining Cost Allowable Con170 U2

FAR 31.201-4 a cost is allowable only when the cost complies with ALL: a) Reasonableness b) Allocability c) Standards promulgated by CAS Board d) Terms of the Contract e) Any limitations set for in subpart 31.201-2

Different non-commercial financing methods CON170 U3L4

FAR 32.1 - Advance Payments - Progress Payments Based on Cost - Loan Guarentees - Paymetns for partial Deliveries - Progress Paymetns Based on Percentage of Completion - Perforamance Based Payments - Provisional Delivery Payments

Describe Performance based payments. Conditions and Use

FAR 32.102, 32.1001; 32.1003

What happens when a contractor does not complete work or deliver on time in FFP contract? In CPFF term?

FFP: subject to default clause CPFF: ???

Describe the process for the CO to dtgermine conract financing terms

FWSR 32.203 and 204.

Liquidation process example

p28 U3L2

progress payments procedure example

page 28 U3L2

Award Fee Review Board

page 54

Direct Labor Categories Vol3ch7

- Engineering - Manufacturing

NPV examples

page 54 U3L2

Define TINA

- must obtain certified cost or pricing data when: - award of negotiation > $700k - modification (even if not required in initial contract)

calculate Percent Change CON170

(NI / OI *100) - 100 = Perc Change

Define Price

- Cost plus any fee or profit far 15.401

Cost Risk things to consider

- 1 of 3 elements to determine contract type - closely linked to market and performance risk - do cost assessment in conjunction with market and performance assessment - to do cost assessment, govt needs to develop cost estimates. - if their is great variety with govt cost estimates, this indications greater risk eg: a wider bell curve indicates wider opions so use cost reimbursement - the primary way to manage cost risk is via contract type selection

Market Risk Things to consider

- 1 of 3 risk elements to consider when selecting contract type - volatile markets and long periods of performance = risk - To assess: conduct market research, study lessons learned from other acquistions, anticipate demands in labor, material, product; assess future competitive factors - Forward Pricing Rate Agreements is useful simplify contract negotiation. Both parties have made assumptions about future market conditions

How much of the DCAA Audit position must you sustain? What is exception? CON170 U5L2

- 75% sustained - except for procurements over $10M

Customary Progress Payment Rates CON170 U3L4

- 80%: Large business - 90%: Small Business - 95%: Small Disadvantaged business

TINA Applicability CON170 U2

- Any negotiated contract $700k+ - Modification of negotiated or sealed-bid contract of $700k+ - Award or Modification of subcontract totaling $700k+

Steps for Developing a CER Vol1ch2 CON170

- CERS are relationships we can use to compare prices of similar items 1) Define the dependent variable (eg. Cost dollars, hours) 2) Select independent variables to be tested 3) Collect data about the relationship of dependent and independent 4) Explore the relationship 5) Select the relationship with the best predicts 6) document findings

Steps for Developing a CER Vol1ch2 CON170

- CERS are relationships we can use to compare prices of similar items 1) Define the dependent variable (eg. Cost dollars, hours) 2) Select independent variables to be tested 3) Collect data about the relationship of dependent and independent 4) Explore the relationship 5) Select the relationship with the best predicts the dependent variable. THIS INCLUDES DETERMINING THE RANGE (max - min) 6) document findings

Establising Terms and Conditions for Economic Price Adjustment

- CPRG V4 ch1.2.1

Cost Plus Contracts with Award Fee CON170U3

- Calculate: estimated costs + base fee amount + award fee pool (based on govt evaluation) - contractor is reimbursed for all allowable costs and has opportunity to earn award fee. - includes base fee which contractor earns regardless. doesn't vary - elements: estimated costs+ base fee (up to 3%) + award fee + evaluation periods - application: (R&D) level of effort. govt wants to motivate excellence, timiness; cost effective - limitations: doesn't replace CPFF or CPIF where objective measurement is feasible

Who is responsible for evaluating the reasonableness of the proposed prices?

- Contracting Officer far 15.404-1 a 1

Fixed Price Contract Characteristics

- Contractor will deliver product under an agreed maximum price - no price adjustment based on contractors cost or performance experience - used when contract risk is low, and govt and contractor can agree to maximum price -- puts maximum risk on contractor. - full responsibility of all cost on contractor 100% of risk - provides maximum incentive for contractor to control cost and perform effectiviely - minimum admin burden on contractor and govt - KO can use with award-fee incentive or performance/delivery incentives when based on factors other than cost.

Terminate for Convenience vs Terminate for Default CON170U3 CPRG Vol4

- Convenience: no longer need product. no liability - Default: Still need product, so re-contract. might have problem with defaulted contractor

Examples of Cost or Pricing Data Vol3ch2

- Cost and Pricing Data is factual and verifiable. - is facts that contribute to soundness of estimates Includes: - vendor quotes - nonrecurring costs - info on production methods - unit cost trends - make or buy decisions - estimated resources to attain business goals - managerial decisions that bear on costs

Approval Authority for Unusual Progress Payments CON170 U3L4

- DFARS PGI 232.501-2

Fundementals of Market Research CON170 U2

- FAR 10 (Market Research) - constant process - done before developing new required documents - before solicitating offers in excess of SAT - before solicitating offers less than SAT if adequate info is not available - not if solicitation will lead to bundled contract - before awarding delivery order under IDIQ in excess of SAT - look for SBA guidance, new co's to the government

Order of Preference for obtaining data when Certified C&P are not required CON170U2

- FAR 15.402 1) Get no additional data other than data from offeror when there is adequate price competition 2) Get data other than certified C&P from Govt or other sources (eg: catalogs, market prices) 3) Get data you need, but not excessive data 3) get Certified C&P

Limitations of FPEPA

- FAR 16.203, the FPEPA clause FAR 52.216 and DFARS 216.203

Limitations for Use of Cost-Reimbursement Contracts CON170U3 CPRG Vol4

- FAR 16.301-3 - use of Cost-reimbursement contracts is prohibited for the acquision of commercial items

Contract Financing CON170 U3Llast

- FAR 32 - Govt provides payment to KR prior to full delivery - when financing commercial contracts, we require that KR provide some security or collateral - not allowed for actions under the Simplified Acquisition Threshold (FAR 13) - payment period between 7 to 30 days of receiving financing request

Adequate Price Competition FAR vs DoD CON170 U4L1

- FAR determination is based on the EXPECTATION of competition - DoD determination is based on Re-solicitation in order to receive more than one proposal - HCA waiver: if only 1 offeror and bid was reopened for 30days, then negotiations based on cost and pricing data and undergo peer review after award

Define Proposal Analysis

- Far 15.404-1 - Determine that the final agreed to price is fair and reasonable. -

Unit Prices Analysis clc056

- Far 15.404-1 f -are analyzed unit of a particular product to determine if they reflect the intrinsic value of an item or service and are in proportion to an item's base cost. - the cost incurred by a company to produce, store and sell one

Contract Financing and Market Research CON170 U3L4

- Financing can be part of Market Research activity. - KO to consider: - extent which other buyers provide financing - overall level of financing normally provided - amount of any commercial advance payments - basis for any payments equivalent to commerical interim payments - methods of liquidation of financing payments

When to request DCAA Audit

- Fixed Price proposals over $10mm - Cost-type proposals over $100mm -Prime denied access to sub

When to request field pricing assistance

- Fixed price proposals exceeding cost/pricing data threshold - Cost-type proposals exceeding the cost/pricing data threshold from offerors with significant estimating system deficiencies - cost-type proposals exceeding $10mm

"Profit adjustment formula" or "Share Line" CON170U3

- Fixed-Price Incentive also benefits government bc govt shares contract savings - Price ceilling to be set close to pessimistic cost estimate - eg: 80/20: govt saves 80% in cost under run, pays 80% in over run. - slope of share line is influenced by risk steep share line favored by KR if contract risk is low. It's like a FFP contract. - for higher risk contracts, KR prefers flatter line (50%/50%). He restricts his profit in an underrun, but limits loss on an overrun - the steeper the line, the more significant the reward for an under run -share lines don't need to be the same for an overrun and underrun.

Contractors Request for Progress Payment CON170 U3L4

- Form 1443

Cost Plus Fixed Fee CON170U3 CPRG Vol4

- Govt pays allowable cost plus fixed fee - Elements: estimated cost + fixed fee - Application: Research, preliminary studies, develoment and test where CPIF not practical - Limitations: fee limited to 15% of estimated costs for R&D or 10% of estimated costs for other contractsor 6% for architecture - KO needs to include note application of above limitations if used - fee is negotiatied and determined by 1) contractor (competitive bid) or 2) wtd guidelines (negotiated bid) - fixed fee does not vary with actual costs (eg: they'll get $250k if costs are higher or lower) - contractor has minimum incentive to control cost - contractor must have adequate accting system - only with FAR 15 (negotiated agreements) - least preferred contract type

HubZone

- Historically Underutilized Buisness Zone - uses PEP: Price Evaluation Preference for small businesses if solicitation exceeds the micro-purchase threshold - For each offer, calculate the BO: base offer (the total evaluated price considering all price-related evaluation facotrs) except the PEP. - apply factor (eg: 10%) to all offers not located in a HubZone. this inflates their price. - offeror can waive PEP

Limitations of Time and Material Contracts CON170U3

- KO can only use if writes determination and findings (d&f) that no other contract type is possible - must be signed prior to execution of base period or option periods, and approved by head of contracting activity. - Contract contains ceiling price that KR exceeds at its own risk

Cost Plus Incentive Fee limitations and applications

- Limitations: adjustment of fees is limited by min/max fee - Applications: - Development and Test. - environments where fee incentive will provide motivation for more effective management - good to wean contractor from CPFF

Commercial Interim Payment CON170 U3L4

- any payment that is not a commerical advance payment or delivery payment - for prompt payment purposes (not subject to interest penalties) - given after some work has been done (commercial advance pymt: no work has been done).

TINA What it Does? CON170 U2

- Lists requirements for Certified C&P Data - Lists exceptions to and prohibitions against requiring Certified C&P - Defines Data other than Certified C&P - Defines process for obtaining cost or pricing data - Defines Process for requiring data other than certified data - provides right for govt to examine contractor records - establishes rules to govern defective pricing (downward contract price adjustments; recovery of overpayments and interest)

Nominal versus Real/Constant Rate

- Nominal: includes effect of inflation/deflation. most often used. Cost of borrowing and inflation. - Real/Constant Rate: excludes effect of inflation/deflation

When to Get Certified C&P data CON170 U2

- Over $700k: Shall - BW $150 SAT and $700k TINA: May with approval of HCA - Below $150k SAT: Never

SDB (Small Disadvataged Business)

- PEA: price evaluation adjustment factors determined by dept of commerce - levels field when SDB competing against non SDB - don't use if: < SAT; awarded through 8a program; set-aside for small business; set-aside for HUBZone; set-aside for service disable veteran; when price is not a factor

Contracts with Commercial Organizations Con170 U2

- Part of FAR 31 (Cost Principals and Proceedures). Includes contracts and mods for: supplies, services, experimental developmental or research work. Not include educational institutions - when cost analysis is performed

Break-even CON170 unit 1

- Profit = 0 - measures firm's risk - to find BE, solve for Q - shows how close the firm is to production capacity. (BEunits/max units capacity). let's you know if the firm can handle additional orders w/o compromising govt availability to receive. 30% is ok capacity - in the chart, a point south of intersection line is a shortfall in revenue. North of intersection means revenue exceeds costs.

Cost-Reimbursement Description CON170U3 CPRG Vol4

- Provide for payment of allowable incurred costs... up to a ceiling that contractor can't exceed. - used when agency can't define its requirements sufficiently to allow for fixed-price type. - uncertainties in contract so can't estimate cost sufficiently. - KO needs to document decision and get signature of his superior

G&A examples CON170 U5L2

- R&D, Marketing, Executive Mgmt, Travel, Legal, Customer Service, HR, Fringe benefits, Adm Assistant, Accounting, IT, Office Supplies, Training

Bases Available for Secondary Pools CON170 U5L2

- Secondary Pools also called Intermediate Service Pools - payroll dollars, head count, square footage

Unusual Contract Financing CON170 U3L4

- anything that deviates from FAR 32 - authorized only after aproval by head of agency or as provided in agency regulations

Contribution Income CON170 unit 1

- The difference bw revenue and variable costs. CI = R-VC or CI = (Ru - Vu)Q - If CI is positive, incr in sales = more profit. If CI is negative, incr sales = less profit or more loss. - or diff bw selling price and variable cost/unit - "contributes" to fixed cost or profit I= Ru(Q) - Vu(Q) or I = Ru- Vu

Final Cost Objective Con170 U2

- a cost objective that has allocated to it both direct and indirect costs and, in the contractor's accumulation system, is one of the final accumulation points

Cost Objective Con170 U2

- a function, organizational subdivision, contract, or other work unit for whcih cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects

Progress Payments CON170 U3L4

- a method of non-commerical financing - made on the basis of costs incurred by contractor - standard due date is 7 days - accounting system must be approved - alternate liquidation rate in certain circumstances - profit excluded from payments - not used for: 1) paymnets based on percentage of completion (except construction, ship building) 2) Payments for partial deliveries 3) Partial payments for a contract termination proposal 4) Performance-based payments

Transportation Cost

- a price related factor - FOB Destination: contract pays for transport - FOB Orign: Govt picks up property at contractor - add this to the price if offeror didn't include in the offer - state in solicitation whether the offer will be evaluated FOB Origin, Destination, Offeror's choice, not evaluated

Multiple Awards

- a price related factor - allows administrative costs (for evaluation purposes) to be added. (but this might push total contract award price over the cost if you gave it to just one offeror). = $500 for sealed bids ~ $500 for Contract by Negotiation - typically used when evaluation method is Lowest Price Technically Acceptable - multiple awards are preferred in IDIQ contracts

Options and MultiYear Contracting

- a price related factor - these are two methods for establishing long term relationships. - both may be used in sealed bid or negotiation - options may be exercised at time of contract award - Options: allow govt to purchase additional supplies or extend term of contract. no obligation - Multi-Year contract: can award contract even if funds for outyears are not appropriate. you may need to cancel contract if no funds get appropriated.(and contract can specify a cancelation fee paid to contractor if canceled).

Defective Cost or Price Data clc058

- a remedy is provided. after contract award, on cost plus profit

Defective Cost or Price Data clc058

- a remedy is provided. after contract award, on cost plus profit - data is inaccurate, incomplete or noncurrent

Labor hour contract

- a type of time & material contract - govt pays fixed Amy for ea hr of work performed - fixed labor rate incl oh, g&a, profiT

Disclosure Statement

- a written description of a contractor's cost accounting practices and procedures - required when contract in excess of $50mm - needs to be verified by FACO. but doesn't mean it's compliant - if inadequate, contract can't be awarded - If full coverage: Disclosure Statement Must be provide. Modified Coverage: disclosure statement May be provided.

Which costs would be proper to charge customers after forming our business endeavor

- all costs - indirect, o/h and G&A

Four best known sources of Index numbers

- all published by BLS 1) Producer Price Index 2) Consumer Price Index 3) Monthly Labor Review 4) Employment, Hours, and Earnings Survey

Documentation for Selection of contract Type and exceptions

- answer in FAR (15?)

Price Related Factors

- any adjustment rquired by law that must be made to an offeror's preferred rice in order to determine which offer represents the lowest offered price - must be described in solicitation

Under what circumstances can direct costs be charged indirectly? CON170 U5Ldirect cost

- any direct cost of a minor dollar amt - it is consistently applied to all cost objectives - produces same result

Government Furnished Property

- applies to competitive fixed-price contracts only . Not sole source or cost-type contracts! Two types of factors: 1) Eliminate Competitve Advantage - if offeror has GFP for other contract, use rental equivalent to adjust offers for comparison. The solicitation must request this info. the offeror must list the dates the equip is going to be used, the equiv rent (for evaluation purposes only), if it's used for other contracts 2) Consider govt costs or savings related to providing the property - take out costs such as deactivating tools, storage

Service Contract Act of 1965 CON170 U5Ldirect cost

- applies to service contracts over $2,500 - subject to us jurisdiction - limits contracts to a max of 5yrs - requires KR to pay local wages and benefits

Why review Price Related Factors

- as you prepare any solicitation, you must identify the price-related factors in the contract award decision. - address any factor that will have a significant and quantifiable effect on total cost - must be done before executing steps 5,6 and 7 of the price analysis process

Proposal Evaluation CON170 U4capstn

- assessment of the proposal and the offerors ability to perform the prospective contract successfully - in accordance with Section M of solicitation - accordance with rules set forth in Source Selection Plan - this phase has detailed fact finding and extensive exchange with offerors - Source Selection made after all review

Contract Financing Payment Defined CON170 U3LlastCON170 U3Llast

- authorized govt disbursement of monies prior to delivery - includes: Advance payments Performance based payments Commercial advance and interim payments Progress payments based on cost progress payments based on percentage of completion Interim Payments

Price Related Factors requiring price adjustment during the price analysis process

- award to multiple offerers - Govt Furnished Property and Production - Transportation Costs - Options and Multiyear Contracting - Life Cycle Costs - Energy Conservation and Efficiency Factors - Lease vs. Purchase Factors - Small Disadvantaged buisness Price Evaluation Adjustments - HUBZone Price Evaluation Preferences - Buy American Act Criteria

Market Research Procedures CON170 U2

- begins with description of Govt need - find commercial items or non-development items - valid for 18mos - customary practice in warranty, buyer financing, discounts, contract type, nature and risk of the requirement

Total Price Con170 U2

- both parties agree to the final price of a fixed price contract

Steps in Using Price Indexes to Analyze Price/Cost Reasonableness to adjust for inflation V2ch1

- brings cost elements to a single time - put data in constant-year dollars Step 1. Collect available price/cost data. Step 2. Select price indexes for adjusting price/cost data. Step 3. Adjust prices/costs for inflation/deflation. Step 4. Apply appropriate analysis technique(s).

Budget Implications: Cost Reimbursement Contracts CON170U3

- budge to the "most likely price" - unlikely potential for ADA (Anti-Deficiency Act) Cost, or Cost Sharing:budget to the total estimated cost or to the Govt share of the total estimated cost Cost Plus Fixed Fee: Total estimated cost + Fee Cost Plus Incentive Fee: Target Cost + Target Fee Cost Plus Award Fee: Budget to total expected cost to be incurred plus base fee plus award fee.Total estimated cost + base Fee + Max award fee

Independent Government Estimate CON170 U4capstn

- can be used as basis to compare prices (as a CER can) Three types: 1) IGE that accompanies the Purchase Request 2) A Value Analysis Estimate resulting from analysisi of function of product and its price. (eg: take the item apart to see how it was made and why it costs what it does) 3) Visual Analysis Estimate: results from a visual inspection of item or drawing to estimate probable value

Evaluating Other Direct Costs Vol3ch8

- can't be used for general purposes - accounting system must segregate ODC - travel - shipping costs - preproduction costs

Life Cycle Cost

- consider a price related factor when life-cycle cost are a significant cost compared to acquisition costs - In addition to acquisition costs, includes operating, supporting and disposal costs - solicitation should consider time value of money; cost uncertainty; inflation; cost estimates

Energy Conservation and Efficiency Factors

- consider a price related factor when results would be meaningful and practical - solicitation should provide for adjustemnts for time value of money, cost uncertainty, inflation, product information

What are the minimum requirements for supporting contractor's material cost CON170 U5Ldirect cost

- consolidated price summary - raw materials - parts by numbers - show sources - quantities and price - conduct and provide price analysis - conduct and provide cost analysis

Techniques for conducting market research CON170 U2

- contact knowledgeable indivduals - review recent market research results - publish formal request for information - Query Govmt Databases (FPDS, FedBizOps, CCR.gov) - Interaction with industry and agencies - catalogs, product literature - interchange meetings with industry

Cost Principle and procedures (FAR 31) must be used when: clc058

- cost analysis is performed - a fixed-price contract clause requires the determination or negotiation of costs, (eg: fixed-price with economic adjustmt or fixed price incentive) used in the pricing of fixed price contracts, subcontracts and modifications whenever Cost Analysis is performed

Certified cost and pricing data

- cost or pricing data that is certified to being accurate, complete and current

CAS Covered Contract

- current award $50mm or more - in multiple award contracts, some contracts would be covered, others may not be. - When a contract is CAS covered, the Standards take precedene over all other accounting rules or guidance. t-here are 19 Standards. - The ACO cannot waive the CAS applicability for a particular contract. That can only be done by the Head of the Agency

Government Labor-Rate Requirements Ch3Vol7

- designed to prevent offeror from lowering employee compensation. Includes 1) Service Contract Act of 1965 2) Davis-Bacon Act 3) Walsh-Healey Public Contracts Act

Procuring Contracting Officer

- determines whether or not a contract may require CAS coverage - May not award a contract until a written adequacy determination has been made by the responsbile official - ensures the contractor has made the required disclosure Cost Accounting Standards

Bases Available for Allocating engineering overhead pools CON170 U5L2

- direct labor dollars, direct labor costs

Price Relative V2ch1

- divide each period price by base year price - eg: 1.000 will be the first year - is the relationship of the price in any period to the base period price

Other Direct Costs

- do not carry overhead - a catch bin for other items - special tooling, travel, computer services, consulting services, preservation, packaging spoilage, rework, excise tax

Steps in Using Price Indexes to Analyze Price/Cost Reasonableness (should pay) V2ch1 CON170

- does a direct cost comparison To perform this analysis, follow the steps below: Step 1. Collect available price/cost data. Step 2. Select a price index for adjusting price/cost data. Step 3. Adjust price/cost for inflation/deflation. Step 4. Use adjusted price/cost for pricing comparisons. - good example pg 21 Unit 1

Separte and independent

- don't base negotiation on: 1) price reductions from other proposals 2) consider losses/profit from other contracts 3) base price on contingencies

Consider when choosing a Price Index

- don't choose an index with raw material if you are reviewing finished product. (won't include labor, cost of capital) - accuracy can be improved by using weighted average index. this is used by many contractors

Advantages of Performance Based Payments CON170 U3L4

- enhanced technical and schedule focus - reducing cost of administration - reinforcing the role of program managers and integrated team members - linking payments to performance - KR gets cash flow - Govt: gets lower price, simple administration

Deficiencies in Estimating System Vol3ch1

- failure to produce historical data - failure to review material cost or subcontract cost - absence of analytical support - excessive reliance on judgment - recurring price findings within the same cost element - failure to integrate other mgmt systems into estimating system - failure to provide established policies, procedures and practices

Customary Contract Financing Defined CON170 U3L4

- financing available for routine use by KOs. doesn't require specific reviews or approvals by higher management

Key elements that impace BE CON170 unit 1

- fixed costs, variable costs, selling price - shift in market supply/demand - learning curve, capital investment - overall health of economy - accounting for fixed costs

Fixed-Price Retroactive Price Redetermination

- for R&D contracts less than $150k if FFP can't be negotiated - short performance period - ceiling price negotiated with shared risk - head of contracitng activity approves in writing - KR accounting system must be adequate

Fixed Price Level of Effort Contract CON170U3 CPRG Vol4

- for R&D studies ususally to produce a report - use when output or results can't be defined, otherwise use FFP - must agree on the required level of effort before contract award - contract price < $150k unless approved by chief of contracting Office - price and payment is based on negotiated level of effort/results. Not on the achieved level of efforts/results

Davis-Bacon Act CON170 U5Ldirect cost

- for construction work over $2,000 - applies to on-site workers - subcontractors working on-site

What are requirements for PCO to seek field pricing support? CON170 U5L2

- for support, KO asks for assistance when info is inadequate to determine fair and reasonable price. Request to be tailored to request the minimum essential info needed. 15.404.2(a)(1)

Cost Plus Incentive-Fee Contracts Description CON170U3

- govt pays allowable cost and incentive fee - incentive fee determined by comparing actual costs to target costs and adjusting target fee IAW fee adjustment formula - Elements: - target cost/ target fee; -Fee adjustemnt forumul; - min fee/max fee

Best NPV CON170

- highest positive or lowest negative

when analyzing proposals, when would a contracing officer not require additional cost or pricing data?

- if TINA exceptions apply (commercial, competition, set by law) - below SAT - if waiver

NPV Analysis is suggested when CON170

- if acquisition involves measurable benefits/cost for 3+ years eg: Lease vs Purchase Lease vs Lease analysis Analysis of life cycle cost alternatives Analysis of Paymnet Alternatives Analysis of Deferred Compensation

Consideration for Contract Financing CON170 U3L4

- if financing clause is included at inception of the contract, there shall be no separate consideration for contract financing. It should be in the negotiated price or contract terms - new considerations may be considered

Establishment of Fixed Fee

- in a competitive process, the contractor proposes a fixed fee in solicitation. It's evaluated during Source Selection Process - with negotiation: weighted guidlines establishes the fee which is then negoitated in oral or written discussions. - limitations on fee exceeding : FAR 15.404-4(c)

Data other than Certified Cost or Pricing Data CON170 U2

- includes appropriate info on prices at which the same/similar items have been previously sold - pricing data, cost data, and judgemental information that allows a KO to determine fair and reasonable price and cost realism - includes nature and amount of contingencies

CASB (cost accounting standard board) objective

- increase uniformity - provide consistency - provide clear guidance on allocability - ensure CAS are fair and equitable

Basis of Profit or Fee objectives

- must be fully documented in PNO - can be weighted guidelines method, modified weighted method or alternate approach

Cost Estimating Methods Vol3ch1

- must be: 1) Equitable: fair results for all contracts and all customers 2) Consistently applied to all contracts and all customers

Cost Realism

- independent review and evaluating of specific cost elements - ensures that 1) work is realistic 2) reflect a clear understanding of requirements 3) are consistent with the various elements of the offeror's technical proposal - shall be use with cost reimbursement contracts - may be used with fixed price incentive (FPI) to assess responsibility and risk. - use when there are quality concerns or new requirements that may not be understood. - shall be used when cost or pricing data not required. May be used if C&P required

Situations for using index numbers

- inflate/deflate prices for comparison - inflate/deflate prices to facilitate trend analysis - estimate project price over period of contract performance - adjust contract price for inflation/deflation

When to use Price Index Numbers ch1

- inflate/deflate prices or costs for direct comparison - inflate/deflate prices to facilitate trend analysis (eliminates effect of inflation so you compare constant-year dollars) - estimate project cost over period of contract performance. (eg: if value of dollar changes) - Adjust costs for inflation or deflation (eg: when prices are volatile, use economic price adjustment)

Employment, Hours, and Earning Survey CON170

- info on hours worked and earnings for various classes of labor. - also useful to price service contracts with significant direct labor

Fixed Price Incentive (Successive Target) Elements CON170U3

- initial target cost and profit - initial profit adjustment formula (includes ceiling and floor) - production point at which the firm target cost and target profit is determined (eg: at delivery or first article of completion) - Ceiling Price

Relation of Indirect Rate to Base CON170 U5L4

- inverse relationship. R= P / B where P is pool. - if the base is optimistic, rate decreases. Used in competitive selection; cost reimburseable contract. As base increases, overall rate goes down. - if base is pessimistic, rate increases. Used in sole source selections, firm fixed price - KR must actively monitor business base - after FPRA reached, ACO can't require certification of the rate

What types of payments are not considered contract financing payments CON170 U3L4

- invoice pymts - payments for partial delliveries - lease and rental payments

Issues and Concerns with Net Present Value Analysis

- is NPV used when appropriate? - are dollar estimates for expenditures/receipts reasonable? - are times projected reasonable - are proper discount rates used in NPV calculations - have all cash flows been considered - is discount factor properly calculated from the discount rate?

Award Fee Incentive Contracts CON170U3

- is a pool of money the contractor can earn based on performance - is in addition to contract's profit or base fee. - used with Fixed-Price and Cost-Reimbursement - Award is stated in the Award Fee Plan (establishes 1) procedures for evaluating award fee and 2) an Award-Fee Board for conducting the award-fee evaluation) - plan is agreed to by both parties in advance of award and can be changed - Plan is attached to contract

Determine Cost Allocability Con170 U2

- is allocable if it's assignable to one or more cost objective 1) is incurred specifically for the contract 2) Benefits both the contract and other work 3) is necessary to overall operation of the business

Reasonableness dependes upon Con170 U2

- is cost necessary for contractor's business - are there sound business practices, arm's lenght bargaining and regulations - contractor's responsbilitiies to the Govt, owners of biz, employees - Deviations from contractor's established biz practices

Why do we use price analysis to determine fair and reasonable

- it's our job as stewards of tax payer - far requires

What necessary items should a technical evalulation address? CON170 U5L2

- labor -material - labor mix

Findings from DCAA Labor audits include CON170 U5Ldirect cost

- labor hrs proposed not consistent with RFP requirements (eg: Sr Eng, not junior) - unreasonable escalation - unreasonable or duplicate fringe costs - proposed rates don't agree with payroll

Monthly Labor Review V2ch1

- lists a number of Government idexes: employment cost index consumer price index producer price index export price index import price index - good for service contracts where direct labor is a significant portion

Findings from DCAA Material audit includes CON170 U5Ldirect cost

- material in inventory not being used - duplicate parts being proposed (problem with BOM) - Material not based on current requirements - material price based on single quote - escalation applied to firm quotes or po -

PBP Proceedures CON170 U3L4

- may be made on either Whole Contract or Deliverable Item Basis Whole Contract: finacing payments applicable to the entire contract Deliverable Item: finacing paymetns are applicable to a specific indivudaul deliverable item. eg: 1 plane for 10 plane order. Or 1 lot of 10 planes

Performance-Based Payments CON170 U3L4

- method of non-commercial financing - for fixed price contracts, except sealed bid - requires more prep to implement than progress pymts - not for incurred costs (progress based), but for a pre-defined event - The contract specifically states the amount of each pbp (can be dollar or percent) - pbp amounts are commsensurate with value of performance event or performance criterion - not subject to interest provisions as partial payments are. - PBP not liquidated by contract deliveries must be repaid in event of termination - PBP term can apply to whole contract or line item - accounting system doesn't need to be included - no alternative liquidation rate - may include some profit - payment rate not to exceed 90% of contract price

Advance Payments CON170 U3L4

- method of non-commerical financing - ok for advance payments for negotiated and sealed bid contracts - liquidated from payments due to the contractor reaching an event - not based on performance

Consumer Price Index V2ch1

- monthly - reports changes to a fixed mix of goods: food, clothing, shelter, transportation, medical services - do not use for material prices - may use if labor rate increases are linked to CPI

Commerical Item Purchase Financing CON170 U3L4

- normaly contractor responsible for their financing - contractor must provide all resources necessary to perform contract - Made under these circumstances: - item is commercial - Contract price exceeds SAT - KO determines it's appropriate - in best interest of Govt - adequate security is obtained - commercial advance pymts don't exceed 15% of contract price prior to performance of work

Defective Pricing

- not accurate or incomplete data - timeliness of data should be as close to negotiation data as practical - occurs when contractors fail to disclose current, complete, and accurate cost or pricing dat as of the conclusion of negotiations and this failure casues an increased contract price.

Designated Payment Office Defined CON170 U3L4

- office designated in contract to make invoice pymts or contract financing pymts. - usually Govt disbursing office

Designated Billing Office Defined CON170 U3L4

- office or person that KR submits invoices - designated in the contract - eg: govt disbursing office; Contract Admin office; Office accepting the supplies; Contract audit office; non-govt agent

Cost allocation of Other direct costs

- often a type of cost that would mnormally be indirect cost, but the proposed contract requires a large, unususal or one-time expenditure. eg Special tooling

Evaluation Factors CON170 U4capstn

- once published are not flexible - Airforce SS factors include: a) Mission Capability: focus on strength and deficiencies of offerors. grading scale blue through red b) Proposal Risk: option if solicitation <$10M. grade range from high to low c) Past Performance: must be recent. criteria in Section M d) Cost and Pricing Data: includes narration of reasonableness, realism, affordability

Who can waive CAS Con170 U2

- only Cognizant Federal Agency Office (CFAO) - head of Agency - contract under $15mm

Courses for action with Anti-Deficiency Act violations CON170U3

- only likely with FPI and FPEPA contracts since "most likely price" can change 1) obligate funds up to the ceiling price (FPI) or maximum EPA (FPEPA) 2) Review progress payment request. allows KO to acertain if additional funding is needed 3) require delivery of Earned Value Mgmt data for FPI contracts

Application and limitation of time and material

- only use when not poss to esti Ate extent or duration of work 1)- govt surveillance bc no incentive for contractor to be efficient 2) fixed hourly rate for ea labor category .and subcontrCtor 3)material handling cost: o ly incl cost not in labor rate. Can inclus indirect cost LIMITATIONS -needs d and f signed by ko - approved by head of activity - must have ceiling price

Goals of the Award Fee Plan CON170U3

- optimize performance by motivating contractor to make use of all resources - delineate how the govt will monitor contractor perforamce - facilitate productive communication - administer the award fee provision - reward success - is heavy in administrative costs

when would contracing officers require certified cost and pricing data?

- over TINA threshold

Delivery Payment Defined CON170 U3L4

- payment for accepted supplies/services (incls partial delivery) - commerical financing payments are liquidated by deduction from these payments - delivery payments are invoice payments for prompt payment purposes

Commerical Advance Payment Defined CON170 U3L4

- payment made before any work performed. - the aggregage of these payments shall not exceed 15% of contract price - payments are for prompt payment purposes (not subject to interest penalties

Price Analysis CON170 U4L1

- preferred method - when there's competition and multiple offers received - Shall be used when Cert C&P not required - when mod (even over the TINA) if it was competitively prices - compare prices received in response to solicitation - compare previously proposed prices - parametric estimating methods - comparison with competitive published price - comparison with independent Govt cost estimates - Comparison with prices obtained thorugh market research - Analysis of pricing info provided by offeror - subjective

TINA Imperatives

- price contracts separately and independently - don't include contingencies - purchase things at fair and reasonable prices

Lease versus Purchase Factors

- price related factor - use if equipement has a unique maintenance requirement

Buy-In:

- primary goal is to recover variable costs - secondary goal is to recover portion of fixed cost

Subcontract Cost CON170 U5Ldirect cost

- prime must conduct appropriate cost and price analysis - assure sub has approved purchasing system - adequate support for fair & reasonable determination - DCAA to request assist audits

Market Research CON170 U2

- process of collecting and analyzing information about capabilities within the market to satisfy agency needs. - a continuous process to gather data on business and industry trends, characteristics of products and services, suppliers capabiliites and realated business practices. - it is mandatedtion

What process we must follow to determine fair and reasonable?

- proposal analysis process - price analysis if not C&P required; cost analysis if C&P required far 15.404-1a

Fixed Price with Economic Adjustment CON170U3 CPRG Vol4

- provides upward and downward revisions upon occurence of specified contingencies. - may be used with award-fee and incentives when based on other than cost - help cope with economic uncertainties - use when market and labor conditions are unstable - standard and semi-standard supplies are limited to 10% of original contract price w/out special approval - protects both contractor and govt

TINA What is TINA?

- public law from 1962 - a surrogate in the absence of normal market forces - gives government infomrational parity with contractors during negotiations to avoid excess pricing - enables govt to determine proposed prices to be fair and reasonable when normal market forces are not in effect

When to use Award Fee incentive, when is it suitable

- r&d; major weapon systems, production items, operational contracting serivces, logistical supprt, construction, services or manpower support.

Producer Price Index (PPI) V2ch1

- reports monthly price changes at the producer/wholesale level for 15 commodity groups - best know source for material pricing - farm, processed foods, textile, skins, fuels, chemicals, plastics, lumber, paper, metals, machinery, furniture, nonmetallic mineral, transportation , misc

Technical Analysis: CON170 U4L1

- requested by KO - performed by DCMA analysis of types and quantities, labor, processes, equipment, tools, scrap, spoilage

Unusual Contract Financing Defined CON170 U3L4

- requires specific reviews and approvals by higher management

Profit/Fee Policy CON170 U5L6

- requires structured approach for each agency. or use another agency's approach. - exclude FCCOM in base cost when calculating profit - ceilings on R&D (15%) A&E (6%) and CPFF(10%) - 3 methods: 1) weighted guidelines 2) modified WGL (for n onprofits) 3) Alternate structred approach - WGL used for forumla priced contract (eg: CPI, FPI) - application MUST be documented in PNM - Performance Risk and Contract Risk don't include FCCOM. but do include G&A)

Goal of Negotiating Contract Type

- result in reasonable contractor risk - provide contractor iwth the greatest incentive for efficient and eoncomical performance - selection is made with contractor input - propoer contract type also attracts more potential offerors and more competition - selection of type is principal method of allocating cost risk bw govt and contractor

Financial Analysis in Market Research CON170 U2

- review contractor financial condition - Sales forecast most important - Total Asset Turnover (sales / assets) - Average Payment Period - Liquidity ratios (contractor's ability to meet short-term debt)

Limitations in Policy concerning contract selection

- sealed bidding only has 2 choices - no contract type not described in FAR can be used - cost plus percentage of cost is PROHIBITED

Direct Labor Estimating Technics CON170 U5Ldirect cost

- see ASC Pamphlet (AFPAM) 63-1

Examples of allowable/unallowable costs clc058

- souveniers, logo stuff for public (not allowed) - company sponsored charity team (allowed) - chartered aircraft (Allowed with Restrictions: limited to standard airfare) - help wanted (allowed) - contributions/donations (unallowed) - subscriptions/publications (allowed) - Denfense against Federal claims (allowed) - Overtime (Not allowed)

Other Direct Costs Examples

- special tooling and test equipment - computer services - consultant services - travel - federal excise taxes - royalties - preservation, packaging - preproduction costs

Certified Cost or Pricing Data CON170 U2

- states that to the best of the person's knowledge, the cost and pricing data is current, accurate and complete as of a date before contract award

Cost Estimating Relationship CON170

- technique used to estimate a cost by using an established relationship with an independent variable (Driver) - used to develop parametric estimates or rough yardstick estimates - is a formula for estimating prices based on the relationship of past price with a physical characteristic (eg: horspower or dollar per pound) - is a framework for using appropriate quantitative techniques to quantify a relationship b/w an independent variable and contract cost or price

Cost Estimating Relationship CON170

- technique used to estimate a cost by using an established relationship with an independent variable (Driver) - used to develop parametric estimates or rough yeardstick estimates - is a formula for estimating prices based on the relationship of past price with a physical characteristic (eg: horspower or dollar per pound)

Three tiered structure of the Award Fee Organization

- the Fee Determination Officer (FDO) - The Performance Evaluation Board (also Award Fee Review Board) - The Performance Monitors

Working Capital CON170 U5L6

- the amount of money that a company has tied up in funding its day to day operations - a compnay has to tie up money to fund its current assets such as work in progress (material, labor, and overhead) unitel they deliver and get paid) - this may be offset by customer providing financing (eg. progress payments)

Pool Costs variable vs. fixed CON170 U5L4

- the higher the proporation of variable costs in a pool, an increase in O/H cost will more closely match the application of the existing O/H rate - the higher the proporation of fixed costs in a pool, an increase in O/H cost will fall further belew the application of the existing O/H rate. The more fixed costs, the more likely a profit windfall will occur if more contracts are won.

Cost Estimating System Vol3ch1

- the policies, pocedures, and practices for generating cost estimates - includes contractors organizational structure; internal/managerial controls; flow of work; estimating methods

Should Pay CON170 U4L2

- the price yielded from market reseach prior to solicitation - the price determined to be the most likely price govt would pay

Under what circumstances must the prime provide indentification of Subcontract Effort CON170 U5Ldirect cost

- the total cost of the work to be performed by each subcontractor - if more than 70% will be subcontracted,

Award Fee Pool CON170U3

- the total of the available award fee for each evaluation period - award fee is earned, so each evaluation period begins at 0% - earning 100% of award fee is mutual goal of KR and govt - many ways to establish amount of award fee

Structures to Analyze Profit or Fee clc056

- there are three structured approaches 1) Weighted guidelines 2) modified weighted guidelines 3) alternate structured approach

Liquidate CON170 U3L4

- to decrease a payment for an accepted item under a contract for the purpose of recouping financing payments previously paid to contractor

Cost Volume Analysis CON170

- tool used by companies to determine break even point and if contribution income is positive or negative -consider only short-term operations (before company can expand and so change relationship) - includes Fixed Cost, Variable Cost, Semi-variable Costs - as long as you're in the relevant range, any change in cost is due to variable costs. fixed costs do not change. variable cost does not change. just Q.

Adequate price competition

- two or more offerors submitted offers - reasonable expectation that two or more offerors would submit... even if only one does - price analysis determines reasonable price in comparison with current prices - use price analysis - if only one offer received, bid must be readvertised and opened for 30days. if still one offer, must use Cost Analysis - if adequate competition, no additional data required

Determining CAS applicability CON170 U2

- two step proces: 1) determine if CAS applies to the contract 2) If CA applies, is it subject to full coverage (all 19) or modified Coverage (CAS 1,2,5,6 or only 1 and 2) - then determine which biz units must submit a Disclosure Statement

What are the minimum requirements for technical evaluation? CON170 U5Ldirect cost

- types and quantities of material proposed - quantities of labor hours - labor mix

Facilities Capital CON170 U5L6

- typically means the net book value of tangible capital assets that are subject to depreciations - term also applies to intangible capital assets that are subject to amortization.

Fixed-Price Prospective Price Redetermination CON170U3 CPRG Vol4

- use for acquisitions of quantity production or service where you can negotiate FFP for an initial period, but not subsequent periods - KO must determine that FFP or FPI will not satisfy the requirement - Contractor has adequate accounting system - price must be redetermined promptly at specified times

Cost and Cost Sharing Contracts CON170U3 CPRG Vol4

- use when govt and contractor expect to receive mutual benefits of incurred costs. "A cost-sharing contract may be used when the contractor agrees to absorb a portion of the costs, in the expectation of substatial compensating benefits - govt pays allowable costs, no fee - uses: estimated costs - good in: non-profit organizations and facilities contracts Cost Sharing - govt pays portion of agreed to and allowable costs - uses: estimated costs and govt share - good in: R&D efforts (both profit and non-profit) eg: scientific

Time and Material Contracts CON170U3

- used when not possible to estimate the extent, duration and cost of the work with confidence - use only if no other contract type possible - use only with a ceiling price that contractor exceeds at its own risk - expensive to the Govt, needs surveillance - govt pays fixed amount for each hour of work performed

Issues and Concerns in Price/Cost Analysis CON170

- were prices/costs adjusted for inflation - is the price index being used reasonable - are adjustment calculations correct - is time period for adjustment reasonable (acquisition date or delivery date) - is more than one adjustment being made for inflation - How far in the future is forecast

when would contracting officers require data other than certified cost and pricing data

- when you need to determine fair and reasonable

Compare FPIF and CPIF

- which contains a ceiling price? - which requires KR to deliver best efforst - which required KR to deliver even if its costs exceed target cost - fixed price: includes default clause

Fixed Price Contracts with Award Fee CON170U3 L1

- written to focus on contractors efforts in technical and schedule performance (bc fixed-price contract already focused on cost control) - need to make sure administration costs don't exceed benfits; procedures for evaluation are in place; award fee board is established; award-fee strategy approved by level above KO - base fee not allowed - used to motivate contractors for aspects of performance that cannot be measured objectively - goal to optimize performance

May a contractor subcontract for the "time" for which it has an hourly rate schedule in the T&M Contract CON170 U5Ldirect cost

- yes - for time performed by contractor, subcontractor or transferred bw divisions and subsidiaries - is charged to govt as time, not material. unless its for incidental services for which there is no labor category. And then it doesn't get o/h or profit

Could the contracing officer require certified cost and pricing data alointg with other than certified cost and pricing data?

- yes, as needed

Firm Fixed Price Characteristis CON170U3 CPRG Vol4

-- used with FAR 13,14,15 -preferred type - use with commercial items (when adequate competition, reasonable comparison with historic price, cost and price info allows estimates, performance uncertainties can be identified

Performance Risk things to consider CON170U3 CPRG Vol4

-1 of 3 risk elements for contract type selection - also called technical risk - Stability and clarity of contract specifications or SOW - Stablity of technology - Type and complexity of the item - Availability of historical data - Prior experience of contractor - Urgency of the requirement and delivery schedule - Contractor technical and financial capability - extent of subcontracting - more risk = fixed price incentive or cost reimbursement. or use award fee

Cost Analysis: CON170 U4L1

-Looks at reasonableness of each cost element. analyze indiv elements including profit/fee. - Shall be used when Certified C&P is required - use with price analysis and cost realism if you need to deem fair and reaonable bc other methods don't help - contract falls over TINA (must provide certified cost data or if you request other than cost data - can be used to supplement price analysis -never performed on sealed bids - for sole source

Walsh-Healy Act CON170 U5Ldirect cost

-Manufacturing or furnishin of materials exceeding $15,000 - prevent trafficing of human beings and force labor

Direct Cost Examples Vol3ch6

-Raw materials, parts, subassembles, components - Collateral costs: freight, insurance - Overruns, spills, defective parts

Techncial Analysis clc056

-Types & quantities of material -Types & quantities of labor hour - Labor mix - Pertinent technical aspects - Processes - Special tooling - Equipment - Real property - Scrap and/or spoilage

Sources of Price Indexes V2ch1

-bureau of labor statistics (principal fact-finding agency) -other government agencies (Fed Reserve, Bureau of Econ Analysis) - Government contracting organizations (developed from raw data or weighted guidelines) - Commercial forecasting firms (good source of forecasting indexes) eg: Global Insight -Industry or trade publications (good for general forecasts of economic condistions) -Newspapers

Using Cost Volume-Profit to

-eg: indefinite quantity contract - selling price based on estimated quantity and estimated costs We can calculate: 1) Estimate Selling Price 2) Estimate Profit 3) Estimate Required Sales 4) Break-even (profit is zero or P=0) 5) Contribution Income

What is Fair and Reasonable

-fair to both parties - judged by a prudent and competent buyer

Before the contracgin officer requests "data other than certrified cost or pricing data" from offeror, where else must he seek the data? when?

-govt records, historical prices -market research

Money has time value because CON170

-opportunity for interest - cost of borrowing - inflation/deflation - A calculation that takes into account the effects of interest, cost to borrow, and inflation/deflation is Net Present Value

Demand (Skimming)

-price is what the market will bear. -quick return on investment. may alienate buyers. - may encourage competitors. -likely in fixed price contracts. - common in rapid change/upgrade environments - difficult for buyer to pay premium

FAR Requires contracting officers to:

-purchase supplies from responsible sources - price each contract independently and separate - not include any contingencies to provide for a price adjustment

Unbalanced Pricing clc056

-reflects whether individual contract line items are over- or understated, which can increase performance risk - increases performance risk - reflects intrinsic value of item

Indirect Cost Rate CON170 U5L2

-the percentage or dollar factor that expresses the ratio of indirect expense incurred to direct labor cost - Indirect Expense Pool / Pool Base or Indirect Cost Pool / Indirect Cost Allocation Base - eg Pool Base could be manufacturing cost

Cost Realism Analysis: CON170 U4L1

-use to determine if cost element estimates are realistic for the work - good for cost reimbursement contracts where quality concerns exist or product not fully understood - independent review to evaluate if requirements can be performed - shall be used in cost reimbursement (only cirecumstance with the analysis type is directed by type of contract) - may be used on competitively priced fixed price to assess performance risk and contractor responsibility - probable cost may differ from proposed cost

Features of FPEPA contracts and when are they useful

...

NPV Analysis is required when CON170

1) $1M fair market value of capital asset AND 2) Capital asset is... - leased for 3 or more years or - new (economic life <3yrs and is leased to govt for 75% of its life OR - built expressly for the Govt OR - leased to the Govt and clearly no alternative commercial use

Contractor Business Systems include

1) Accouting system 2) earned value management system 3) estimating system 4) material managemetn and acocunting system 5) property manaagement system 6) purchasing system

Three types of FPEPA CON170U3 CPRG Vol4

1) Adjustment Based on Established Price 2) Adjustments based on Actual Costs of labor or Material 3) Adjustments based on cost Indexes of labor or Material

Adjustment Period Selection for Inflation/Deflation CON170

1) Adjustment based on acquisition dates (more common) 2) Adjustment based on delivery dates (harder to get) - wages should always be adjusted for the time period in which the work will be performed

Basic Cost Estimating Methods Vol3ch1

1) Analogy 2) Parametric (Statistical) 3) Engineering (bottoms Up) 4) Actual Cost

DCMA/DCAA ongoing Pre and Post Award Principals

1) Business System Review 2) Fiancial Capability Determination (one element of pre-award survey) 3) Cost Accounting Standards (CAS) administration - includes disclosure statement 4) Indirect Cost Rates 5) Post Award Reviews for Defective Pricing (DCAA)

Steps to Calculate Cost for a Given Quantity CON170 unit 1

1) Calculate Variable Cost (C2-C1 / Q2-Q1) 2) Calc Fixed element (F = C- Vu(Q) 3) Develop Estimating Equation (C=F + Vu(Q)) 4) Estimate Total Cost for any quantity in the relevant range (that falls bw Q1 to Q2)

Order of Preference of Type of Data Required and the Analysis Technique to use CON170 U4L1

1) Certified C&P not required, and fair and reasonable can be established from Govt and other sources - Price Analysis shall be used 2) Certfied C&P required - Cost Analysis shall be used 3) Certified C&P not required, but other than certified C&P needed - Price Analysis shall be used 4) HCA (head of contracting agency) authorizes KO to get Certified C&P - Cost analyiss shall be used

Steps to develop a simple price index ch1

1) Collect data for each period 2) Seclect an appropriate base period 3) Divide each period price by the base-period price

Types of Commercial Contract Financing CON170 U3L4

1) Commercial interim payments 2) Commercial advance payments

Two Forms of Cost-Plus-Fixed-Fee Contract CON170U3

1) Completion Form (preferred) 2) Term Form (fee paid when contractor expends a pre-determined level of effort)

Use Weighted Guidelines Method unless

1) Contract is cost-plus award-fee contract 2) contract action is with nonprofit org other tahn FFRDCs 3) An alternate structured approach is authorized

Factors for KO to consider when using award fees

1) Contractor Motivation- contractor focuses on areas critical to program success. 2) Administrative Cost: because they are significant (to monitor and convene board) consider the admin costs to the benefits of doing an Award Fee Contract 3) Contract Value: don't base Award Fee decision on only large value contracts. Choose those that are critical to program's success

Suspension or reduction of Payments

1) Contractor Non compliance 2) Loss Contracts

Sources for firms to determine direct vs indirect costs

1) Cost Accounting Standards (CAS) 2) FAR 3) GAAP

Cost-Reimbursement Family of Contracts CON170U3 CPRG Vol4

1) Cost and Cost Sharing 2) Cost Plus Fixed Fee 3) Cost Plus Incentive Fee 4) Cost Plus Award Fee

Sellers Price Approaches Vol 1 ch0

1) Cost-based pricing - Mark-up Pricing - Margin on direct cost - rate-of-return pricing 2) Market-based pricing - profit maximization pricing - market-share pricing - market skimming - current revenue pricing -promotional pricing - demand-differential pricing -market-competition pricing

Seller Pricing Strategy Con 170 U2

1) Cost-plus (market Penetration): determine minimal acceptable price. 2) Demand (Skimming): price is what the market will bear. quick return on investment. 3) Rule of Thumb: cost to produce plus mark-up 4) Buy-In: price to recover variable costs - Penetration and Rule of Thumb easiest to understand and deal with . easier to get info from seller.

Basis for Estimating Direct Costs Vol3ch6

1) Current Quotes 2) Historical Quotes 3) Inventory Pricing

Price Analysis Process

1) Determine Solicitation Provisions 2) Determine Total Price Offered 3) Evaluate Award Combinations 4) Make Award Decision 5) Determine Lowest Evaluated Price 6) Compare the Offered Price with Other Prices 7) Account for Differences between the Offered Price and Other Prices

Three areas of Planning for PBP CON170 U3L4

1) Determining importance of events 2) Establishing clear "success criteria" 3) Setting the dollar amount and timing for financing payments

Cost Principals and Procedures shall be incorporated in contract as a basis for:

1) Determining reimbursable costs 2) Negotiating indirect cost rates 3) proposing, negotiating, or determining costs under terminated contracts 4) price revision of fixed price incentive contracts 5) price redetermination 6) Pricing changes and contract Modifications

Applications for Cost Volume Profit Equation CON170 unit 1

1) Estimate Selling Price: Ru(Q) = F+ Vu(Q) + P 2) Estimate Profit: Ru(Q) = F+Vu(Q) + P 3) Estimate Required Sales

Situations for use of Cost Volume Analysis CON170 unit 1

1) Evaluating item price in price analysis 2) Evaluating direct costs in pricing new contracts. As direct costs are spread over more units, price declines. 3) Evaluating direct costs in pricing contract changes. the effect of contract change on contract price. 4) Evaluating indirect costs. As volume increases indirect cost (fixed and semi-fixed) are spread out more.

Two other agencies besides BLS that provide index Info CON170

1) Federal Reserve System 2) Bureau of Economic Analysis Publications

Family of Fixed Price Contracts CON170U3 CPRG Vol4

1) Firm Fixed Price 2) Fixed Price with Economic Adjustment 3) Firm Fixed Price Level of Effort 4) Firm Fixed Price Redeterminable 5) Firm Fixed Price Incentive Firm Target 6) Fixed Price Incentive Successive Target 7) Firm Fixed Price with Award Fee

Time and Material Contracts composed of: CON170U3

1) Fixed hourly rate for each category (of KR, sub, or subsidiary). for transfers bw divisions, don't include profit. - fully loaded: incl overhead, G&P, profit 2) Materials at cost or catalog price. Must exclude labor-hour rate. 3) Requires Surveillance (no cost control or efficiency incentives). therefore, govt must ensure KR is using efficient methods

Planning Assumption

1) General performance problems 2) Technological changes 3) Interuptions and shortages 4) Inflation and Deflation

Methods To Determine if there is a trend in the dependent variable

1) Graphic Analysis (not so accurate) 2) Regression Analysis (calculates least squared best fit) 3) Spearman Correlation Coefficient

Issues and Concerns with Cost-Volume Profit Analysis CON170 unit 1

1) Has contractor's cost structure changed substantially (CV analysis is short-term. significant changes would include downsizing. purchase of new equipmt) 2) Is the straight-line assumption reasonable (line may be curved. regression analysis provides coefficient of determination (r2) 3)Are current volume estimates within the relevant range? (if volume is outside of range, the results will be unreliable

5 Questions to aski when Using Independent Govt Estimate CON170 U4capstn

1) How was the estimate made? 2) What assumptions were made? 3) What information and tools were used? 4) Where was the information obtained? 5) How did previous estimates compare with prices paid.

5 step Procedure to determine Cost Adjustments for FPEPA

1) Identify the index(es) which will be used in making adjustments 2) Identify the base period and times or events that will trigger price adjustments 3) Identify the percentage of the base price subject to adjustment 4) Identify any limits on adjustment 5) Calculate the adjusted price -example pg 24 L7

End of Period Evaluation Process

1) Issue End of period evaluation reminder 2) receive evaluation from Performance monitors 3) Prepare AFRB Briefing 4) Convene AFRB 5) Brief FDO 6) FDO Decides Overall Rating and Earned Award Fee 7) FDO LEtter Notifying Contractor of FDO's decision 8) CO Issues Obligation Documetn 9) Debrief Contractor,

Types of Risks to consider when Selecting Contract Type CON170U3 CPRG Vol4

1) Market Risk - use Fixed price for low market risk, cost reimb for volatile markets 2) Performance or Technical Risk - uncertainty around contract performance - great the performance risk, the more likely for a fixed price plus incentive or cost reimbursement contract 3) Cost Risk - interdependent with market risk and performance risk - Costs elements are developed to determine cost risk. the greater the variety of cost elements (or point estimates), the greater the cost risk

Types of Contract Financing CON170 U3Llast

1) Non-Commercial Item Purchase Financing 2) Advance Paymetns for Non-Commerical Items 3) Progress Payments Based on Costs 4) Performance-Based Payments

4 basic factors of profit

1) Performance Risk 2) Contract Type Risk and Working Capital Adjustment 3) Facilities capital Cost of Money 4) Cost Efficiency

Performance-Based Payments are Based on CON170 U3L4

1) Performance measured by quantifiable methods 2) Accomplishement of defined events 3) Other quantifiable measures of results

Six Proposal Analysis Techniques clc058

1) Price Anaysis 2) Cost Analysis 3) Cost Realism Analysis 4) Technical Analysis (use to determine need for proposed resources) 5) Unit Prices 6) Unbalanced Pricing

Factors for Selecting Contract Type CON170 U3

1) Price Competition 2) Price Analysis 3) Cost Analysis 4) Type and Complexity of the Requirement 5) Combining Contract Types 6) Urgency of the requirement 7) Period of Performance 8) Adequacy of Contractors Accounting System

Order of preference of Contract Financing CON170 U3L4

1) Private Financing w/o govt guarantee 2) customary contract financing other than loan guarantees and advance payments 3) Load guarantees 4) Unusual Contract Financing 5) Advance Payments

Four different types of DCAA audit opinions CON170 U5L2

1) Qualified 2) Unqualified 3) Adverse 4) Disclaimer

Two methods of Estimating Price/Cost using index number V2ch1

1) Ratio Method 2) Price Adjustment Formula Method

Cost Estimating Techniques Vol3ch1

1) Round Table: quick results, cheap, don't need alot of data, judgemental 2) Comparison (cost of a task vs historical cost): moderate data, jusdgement, price 3) Detailed (look at processes and assemblies): high data, cost, high results

What are four specific contract administration functions that may NOT be retained by the PCO? CON170 U5L2

1) negotiate forward price rate agreement 2) Establish indirect cost rates 3) CAS Cost Accounting Standards 4) Adequacy of Contractor's Accounting System FAR 42.302

Comparative Analysis as method of Price Analysis: Steps CON170 U4L2

1) Select Prices for Comparison - other proposed prices, commerical prices, previously proposed prices, parametric estimates, independent govt estimates 2) Indentify Factors that Effect Comparability 3) Determine the Effect of these factors on price being analyzed 4) Adjust Prices for Comparison with Quantitative Techniquest to adj. prices: - Index Numbers - Trend Analysis - Price-Volume Analysis - Cost Estimating Relationships - Ratio Price to Direct Cost 5) Compare Offered Prices with Adjusted Prices

Internal Variables

1) Seller's Internal Characteristics: capacity utilization factor is v significant in pricing strategy. Max capacity means seller maximizes profit. Recession can min capacity and seller focused on recovering (some) fixed cost and Buy-in and Penetrating Strategy (when seller under capacity) and Skimming when he's maxed. 2) Management Orientation (sales targets, risk avoidance, desired rate of return). 3) Accounting and Costing Methods

Seven Steps of Market Investigation CON170 U2

1) Summarize the market 2) formulate requirements 3) identify sources of info 4) survey suppliers and collect product/service info 5) check references from current users and suppliers 6) evaluate candidates 7) documents results

Issues in Adopting Commerical Contracing Practices in Defense Acquisition

1) Systemic and Cultural Differences - Use of Taxpayer Money - Fairness: significant emphasis on fairness in Govt - Conflicting Goals limits competition - Defense Dept is Final Customer - A Different Culture. Private industry is not held to same level of accountability as Govt - Reluctance of Commercial Firms: funding issues, protests, potential terminations 2) Product Differences - Higher Performance Requirements - Buying in Small Lot Sizes: Private can sell volumn to private. Govt small buyer - Cost and Pricing Issues: - Liabilities - Supportability/Obsolescence - Warranties

Cost and Pricing Data must be obtained before: CPRG

1) award of negotiated contract 2) award of subcontract 3) modification of a sealed bid or negotiated contract (consider increase and decrease

Cost and Pricing Data must be obtained before: Vol3ch2

1) award of negotiated contract 2) award of subcontract 3) modification of a sealed bid or negotiated contract (consider increase and decrease

When can you use the Alternate Structured Approach of Profit

1) contract action is at or below cost/pricing threshold 2) architect-engineer or construction work 3) contracts primarily requiring delivery of material from subcontractors 4) Contract termination settlements - alternate profit structure must be approved in writting

Never require cost or pricing data for CPRG

1) contracts under Simplified Acquisition Threshold (consider both inc and decr in mods). except if CO can justify request in writing 2) Exercise of a contract option 4) proposals for overrun funding or interim billing price adjustments

Contingency categories

1) falls into presently known and existing conditions and effects on cost of contract can be forecasted 2) falls into presently known or unknown conditions and effects cannot be reasonably forecasted eg: Improvement Curves - used to estimate contract price, direct labor-ours, material cost, or othe rrecurring contract costs

Contingency categories

1) falls into presently known and existing conditions and effects on cost of contract can be forecasted 2) falls into presently known or unknown conditions and effects cannot be reasonably forecasted eg: litigation

To align contract type to contract risk, consider: CON170U3 CPRG Vol4

1) identify available contract types 2) consider acquition method 3) consider commericality 4) consider cost risk associated with managing other than fixed price 5) consider performance incentives 6) consider accounting system adequacy 7) document the selection

Questions to Determine Cost Reasonablness

1) is the cost necessary to conduct business eg: paying taxes 2) is cost of sound business pactice, law. eg complying with environmental standards 3) are offerors actions reflective of a responsible attitude toward govt. 4) are offerors actions consistent with established practices? - KR is responsbile for burden of proof

CAS does not apply: clc056

1) item is determined a comericial item 2) price set by law or reguation 3) contract under relevant dollar threshold

Seven FACTORS that affect price comparability CPRG V1ch6 CON170 U4L2

1) market conditions 2) geographic location 3) quantity or size 4) terms and conditions of acquisition 5) purchasing power of the dollar 6) technology 7) extent of competition

Two phases of Market Research CON170 U2

1) market surveillance (strategic market research) - helps define and refine requirements. you may consider trade-offs in the requirement so you can get a commercial or non-development item - pursue a broad understanding of several markets. not focused on specific supplier/product - develop a base knowledge for more in-depth study later 2) market investigation (tactical market research) - pursuing in-depth understanding of single, specific market - looking for specific information on suppliers and product - expands on market surveillance

What Cost elements must be analyzed when C&P is required clc056

1) materials and services 2) direct labor 3) Indirect costs 4) Other Cost 5) Royalties 6) facilities capital cost of money - C&P data must be factual

Steps to determine if prices are reasonable

1) obtain certified c&P as required 2) obtain data other than C&P (with this order of preference): - obtain no other data if there's adequate competition - govt sources - public catalogues, market prices

Exception to TINA requirement to obtain cost and pricing data CPRG

1) price is based on adequate price competition 2) price is set by law/regulation 3) you are acquiring a commercial item (includes "of a type" service or product). (Actual sales of item has to have occurred) 4) Head of Contracting Activity (HCA) grants waiver - CO determines first 3 exceptions 5) dont get cert c&P for acquisitions < SAT 6) when modifying a contract of a commercial item

5 Steps of Price Comparison CON170 U4L2

1) select prices for comparison 2) identify factors that affect comparability 3) determine the potential impact of these factors on prices selected 4) adjust prices selected for compairson 5) compare adjusted prices to the offer in in for the award

Net Present Value: The process

1) select the discount rate (provided by OMB) 2) Identify the cash flows to be considered (net purchase price, lease payments, salvage, maintenance, disposal) 3) identify timing of cost/benefits and calculate discount factor 4) calculate the net present valued of each alternative 5) select offer with best Net Present Value

External Variables

1) the Nature of the Product 2) Seller's Market Characteristics 3) Buyer's Control Variables

What is the limit on aggregate dollar value of comercial advance payments

15%

Calculate relative price change bw two time periods V2ch1

2009: 123.2 2006: 112.0 123.2/112= 1.1 - prices in 2009 were 1.1 times more expensive. Or 10% more expensive

What additional limitation on cost-plus-fixed-fee contracts are provided by DFARS 216.306

??

What happens if a contractor does not complete work or a delivery wihtine the estimated cost in CPFF completion contract?

??

What is the additional guidance from DFARS PGI 216.405-1 regarding cost-plus-incentive-fee contracts

??

does FAR describe the process for justifying and approving the use of the award fee incentive?

???

Net Present Value Definition CON170

A calculation that takes into account the effects of interest cost to borrow, and inflation/deflation - PV = Discount Factor * Cash Flow

What point in the life cycle of the development of a major system should a cost-plus-fixed-fee normally no longer be used CON170U3

A cost-plus-fixed-fee contract normally should not be used in development of major systems (see Part 34) once preliminary exploration, studies, and risk reduction have indicated a high degree of probability that the development is achievable and the Government has established reasonably firm performance objectives and schedules.

Mfg Direct Labor vs Indirect (overhead) Labor CON170 U5L2

Direct - fabricators, quality, assemblers Indirect (Overhead) - supervisory and admin; training, juigs

Economic Price Adjustment Formula CON170U3 L7 CPRG Vol4

Adjusted Unit Price = [I2 / I1 * S(P)] + [(1 - S)(P)] I1= Index for base period I2= Index for Adjustmt period S= Percentage of Price subject to adjmt P= Base unit contract price - example on pg24 L7

When to Use Price Indexes

Adjusting Prices/Cost for Analysis - calcluate relative price change b/w 2 periods - determine percentage change bw two years - estimating prices/costs using index numbers - adjustment period selection (either acquisition date or delivery date (( more accurate but hard to define))) Adjusting Price/Cost for Pricing Comparison - example using price indexes to analyze price/cost reasonableness Adjusting Price/Cost for Further Analysis

Cost Adjustment Methods for FPEPA CON170U3 CPRG Vol4

Adjustments based on variations in: - established (catalogue) price - actual cost of labor or material - price/cost indexes for labor/material

Award-Fee Incentive Advantages and Disadvantages CON170U3

Advantages - Flexibility - Govt must set objective - Allows for subjective cirteria when KO determines in Govt's best interest - unilateral fee determination - program manager has leverage Disadvantages - Administrative Burden - Potential for contractor to expect fee payment

Caution in use of the Award Fee Incentive

After 2006 GAO report of poorly structured Award and Incentive contracts, GAO issued several recommendations: - link award fees to desired outcomes - ensure that Award fees are commensurate with contractor performance - require the appropriate approval official to review all new contracts to ensure compliance with 1 and 2 - Issue policy guidance on when "rollover" of unearned fee is appropriate - Develop a mechanism for capturing award and incentive-fee data within existing data systems - develop performance measures to evaluate the effectiveness of award and incentive fees as a tool for imporving contractor performance and achieving desired outcomes - develop a mechanism to share proven incentive strategies

Allocable Cost clc058 Con170 U2

Assignable to one+ cost objectives on basis of relative benefits received. - term includes both direct assignment of cost and the reassignment of a share from an indirect cost pool - can be direct or indirect. but not both

Federal Reserve System V2ch1

Board of Governors published economic indexes on business, commodities, construction, labor, manufacturing, and wholesale

Cost and Pricing Certificate -

C&P based on facts, not judgement - doesn't certify accuracy

How will we charge our direct costs to our customers?

CON170 U5L2

Since indirect cost, by definition, benefit multiple cost objectives or customers how will we fairly charge each customer for their fair share of these costs?

CON170 U5L2 - based on the % allocated to each customer - or based on the Allocation rate (Expense Pool / Allocation Base) * Expense-+

Comparison Estimates Vol3ch7

Can be 1) Direct Estimating Relationship - quantitative technics (Improv curve, regression) - subjective factors (plant conidtion factor, manufacturing allowance, complexity facor" 2) Cost Estimating Relationship - cost-to-cost relatinship: based on establihed relationship bw 2 contracts - product-to-cost relationship: relates a labor hour estimate to a physical characteristic of the product (eg: janortorial services are related to square fee)

Math Definitions CON170

Center: mean (avg) or median (middle Shape: Normal: mean = min (bell curve) Right Skew: mean > median (peak early) Left Ske: median > mean Bi-modal: (more than one peak) Spread: Min; Max; Range Trend: results when sepaate influence on data -will an independent variable help explain variation - size, quality, performance

Cost Volume Profit Analysis CON170 unit 1

Cost = F + Vu(Q) Revenue = F + Vu(Q) + Profit or Ru(Q) = F + Vu(Q) + P

Engineer Direct Labor vs Indirect (overhead) Labor CON170 U5L2

Direct - Design, technical documents, test, spec, configuration Indirect (Overhead) - Test Equipment, supervisory, administration, CAD, training

Direct Materials vs Indirect (Overhead) Material CON170 U5L2

Direct - bulb, labeling, circuit boards, remote control Indirect (Overhead) - wiring, shipping, screws, packaging, inventory control, purchasing, material handlers

Agency solely responsbile for pre-award survey determinations of contractor financial responsbility

DCMA

How much of the award fee pool should be reserved for the final evaluation period in CPAF contracts?

DFARS 216.405-2

Award fee evaluation guidance criteria

DFARS PGI 216.401

Direct vs Indirect Costs CON170 U5L2

Direct: single, final cost objective (product or contract) Indirect: benefits multiple objectives or direct costs of minor amounts

Exceptions to TINA

Don't need Cost and Pricing Data when: - adequate price competition - price set by law - commerical item - waiver - mods to commerical contract

Sequence of Govt Communication with Contractor

Exchanges: before receipt of proposals Clarifications: when award will be made without discussions Communications: after receipt of proposal, but before establishing competitive range Discussions: when negotiations are held in a competitive acquisition. After competitive range is established.

Applications and limitations for FPPR

FAR 16.205-3 (appli and limitations

Budget Implications: Fixed Price Contracts the initial budget is set to: CON170U3

Firm Fixed Price: set to basic contract price anticipated final negotiated price. Fixed Price Econ P Adjustment: set to basic contract price - no EPA set to anticipated final negotiated price (basic contract price). Does not include economic price adjustment bc the EPA clause is a contingency which will not likely occur Fixed Pirce Incentive: set to Target Cost + Target Profit Fixed Price Award Fee: set to Price of basic contract + maximum allowable Award Fee * in FPI and PFEPA contracts, the most likley price is subject to change

Incentive Contract Types CON170U3

Fixed - Fixed Price Incentive (Firm target) - Fixed Price Incentive (Successive target) - Fixed Price with Award Fee Cost-Reimb - Cost Plus Incentive Fee - Cost Plus Award Fee

Fixed Price W/Award Fee vs Cost Plus w/Award Fee

Fixed: - no base fee Cost - Both: - FDO ratings for evaluation will be provided within 45 days of end of period - apply the DoD Offset Policy for Facilities CCoM in calculating the pre-negotiation base-fee amount - criteria of evaluation is stated in Award Fee Plan

Market Surveillance CON170 U2

Four steps: a) identify the market b) identify sources of info c) collect relevant market info d) document results

Categories of Indirect Costs CON170 U5L2

General & Administrative: cost of doing business as a whole Overhead Cost: production function support costs (eg Material O/H; Eng O/H; Mfg O/H Intermediate Service Pools: managed separately for subsequent distribution ot other primary pools (eg: facility use and occupancy, computer services)

Decisions that NPV helps / doesn't help you make CON170

Helps: - is it better to lease or purchase - which offer provides best value - apples-to-apples comparison or gets things in Constant Dollars Doesn't Help: - is price fair and reasonable - assess cost realism

Ratio Method to estimate price/cost V2ch1

I2 / I1 = P2 / P1 I2= index for period you are estimating P2 = price you are estimating

Criteria for Use of Performance Based Payments CON170 U3L4

KO may use PBP if: - KO and KR agree on terms - it's fixed type - if an IDIQ, the item or contract doesn't provide PBP

Before including financing in a solicitation or contract, the KO must consider several factors CON170 U3L4

KO must: - provide financing only to extent necessary - adminster financing to aid, not impede acquisition - include the form of contract financing deemed to be in Govt best interest - monitor the contractor - must pay special attention to Small Businesses (Certificate of Competency from SBA has no bearing on this)

Progress Payment transactions are managed and approved by: CON170 U3L4

MOCAS (Mechanization of Contract Administration Services Wide Area Work Flow (WAWF)

Price Adjustment Formula Method CON170

NI / OI * OldPrice = NP or P2=I2/I1*P1 - adjust cost from any time period for inflation or deflation

Can contracting officer accomplish all of the proposal analysis techniques on his/her own

No. get technical analysis, price analysis

Price Adjustment method to estimate price/cost V2ch1

P2 = I2 / I1 * P1

Discount Rate vs Discount Factor

Rate: interest rate from OMB circular Discount Factor: uses Rate: 1/(1+i)^t

Revenue vs Profit

Revenue: Cash from sales (or unit price) times quantity sold Profit: Revenue minus Total Cost Ru(Q) = F+ Vu(Q) + Profit

Using Cost Volume Analysis to determing fair and reasonable

Steps: 1) Calculate Variable Cost V= C2-C1 / Q2-Q1 2) calculate Fixed Element C2 = F+ V*Q 3) calculate price P = F+ V*Q

Cost input Con170 U2

The cost (except for general and administrative expenses) for contract costing purposes that is allocable to the production of goods and services during a cost accounting period.

How to Define Performance Based Payment Terms CON170 U3L4

Three pieces: 1) Payment Event or accomplishment 2) Definition of Successful Completion 3) the Value of the Event - all these contribute to ensure KR has cash flow and motivated to perform

Award Fee Determination Team CON170U3

Three tiers: 1) the Fee Determinging Official (FDO) decides how much $$ the contractor will earn in each period. Approves Plan changes; decides how to calculate award. 2) Performance Evaluation Board: Conducts ongoing evaluations of contractor performance and makes recomendations to FDO 3) Performance Monitors (can be ACOs, Program Mgrs). provides continuous evalutions. the foundation of the award process (see CPRG section 1.4.1)

Pta

U3 l1 of 79

Intermediate Service Pool CON170 U5L2

Utilities, building insurance, rent, security, computer services, copy center

Ways to allocated G&A: Total Cost Input (TCI) vs Value Added Base (VA) CON170 U5L2

Value-Added: for companies wh consider their G&A expenses more associated with Labor functions than material functions (eg: functions are HR expenses) - is a more stable G&A rate when prices of material are volatile - is total cost input less material and subcontract Total Cost Input: G&A expenses are more related to material than labor. You run the risk of allocating more G&A to contracts that have higher purchased materials - is all direct and indirect o/h costs* companies can choose either method, but once chosen must be consistent

Can direct costs ever be charged indirectly? CON170 U5Ldirect cost

Yes. - any cost of a minor dollar amount - must be consistantly applied to all final cost objectives - must prudence about the same result if is direct or indirect - BUT, you can't charge the same cost in both direct and indirect (eg: Dr Noodles salary is already included in overhead)

When does adjustment for Price Related Factors fall in the Price Analysis Process

after award decision, before determining lowest evaluated price (or prior to ranking offers) Price Analysis Process: 1) Determine Solicitation Provisions 2) Determie total price offered 3) Evaluate award combinations 4) Make award decision apply factor 5) determikne lowest evaluated price 6) Compare offered prices with other prices 7) Account for differences

Pricing Variables

factors sellers use to determine price strategy: Intrinsic: baseline needs, costs, product characteristics, regulatory system Extrinsic Factors: relate to economic and operating environment of a procurement, incluing product differentiation, demand, and number of firms involved

self liqudating define

far 32.105(a)

Price Analysis Methods

i) Comparison of proposed prices received in response to the solicitation (ii) Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items (iii) Use of parametric estimating methods/application of rough yardsticks (iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements (v) Comparison of proposed prices with independent Government cost estimates (vi) Comparison of proposed prices with prices obtained through market research for the same or similar items (vii) Analysis of pricing information provided by the offeror

Price Analysis Methods

i) Comparison of proposed prices received in response to the solicitation (competition) (ii) Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items (historic) - two above are preferred methods (iii) Use of parametric estimating methods/application of rough yardsticks (iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements (v) Comparison of proposed prices with independent Government cost estimates (vi) Comparison of proposed prices with prices obtained through market research for the same or similar items (a: published price list b: published market prices c: similar indexes (vii) Analysis of pricing information provided by the offeror

What happens if contractor is late in paying its contract debts to Gove

if not liquidated within 30 days, payment office sall initiate witholding principal, interest, penalties and admin chare - transer to DTC if due over 180 days

Price Index Numbers ch1

measure relative price changes from one time period to another. - measure percent change in price - widely, most common, used Simple Index: calc price change for single item over time. eg lemons or limes Aggregate index: numbers calculate price changes for a group of related items: eg: citrus fruits, Producer Price Index

Bureau of Economic Analysis Publications

provides general information on trends in industry and business outlook - furnishes economic indexes on business, construction, manufactures, and wholesale trade