Tuesday, January 26, 2010

Business System Requirements - Estimating

The DoD has proposed regulations that will allow it to withhold 10 percent of each billing for each business system found to be inadequate. We have been discussing the Government's fundamental expectations of these systems. Previously, we looked at the Purchasing and Accounting Systems. Today we continue our coverage with the Estimating System. After the accounting system, we believe the estimating system is the most important business system for Government contractors. A good system will facilitate contract negotiation and award and will decrease the risk of defective pricing.

For DoD purposes, an adequate estimating system must:

  1. Establish clear responsibility for preparation, review, and approval of cost estimates;
  2. Provide a written description of the organization and duties of the personnel responsible for preparing, reviewing, and approving cost estimates;
  3. Assure that relevant personnel have sufficient training, experience, and guidance to perform estimating tasks in accordance with the Contractor's established procedures;
  4. Identify the sources of data and the estimating methods and rationale used in developing cost estimates;
  5. Provide for appropriate supervision throughout the estimating process;
  6. Provide for consistent application of estimating techniques;
  7. Provide for detection and timely correction of errors;
  8. Protect against cost duplication and omissions;
  9. Provide for the use of historical experience, including historical vendor pricing information, where appropriate;
  10. Require use of appropriate analytical methods;
  11. Integrate information available from other management systems, where appropriate;
  12. Require management review including verification that the company's estimating policies, procedures, and practices comply with this regulation;
  13. Provide for internal review of and accountability for the acceptability of the estimating system, including the comparison of projected results to actual results and an analysis of any differences;
  14. Provide procedures to update cost estimates in a timely manner throughout the negotiation process; and
  15. Address responsibility for review and analysis of the reasonableness of subcontract prices.
How does your estimating system measure up?

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