Tuesday, October 12, 2010

Adequacy of Cost or Pricing Data

If you submit a proposal for a contract based on cost or pricing data, chances are good that it will be audited. One of the first things an auditor will do upon receipt of a request to perform an audit is to make an assessment on the Adequacy of the proposal. Previously, we wrote on how the auditors go about making these adequacy determinations. You can read that post here. It is a judgment call of course when an auditor deems the cost or pricing data so deficient that an audit cannot be performed. Depending on the specific circumstances, the auditor must decide whether one item alone or a combination of items justifies a notification to the contracting officer that a proposal is unauditable and therefore not acceptable as a basis negotiating a fair and reasonable contract price. Examples of cost or pricing data deficiencies that would usually be reported to the contracting officer follow:

  1. Significant amounts of unsupported costs.
  2. Significant differences between the proposal and supporting data resulting from the proposal being out of date or available historical data for the same or similar items not being used.
  3. Significant differences between the detailed amounts and the summary totals (e.g., the bill of material total does not reconcile with the proposal summary).
  4. Materials are a significant portion of the proposal, but the contractor provides no bill of materials or other consolidated listing of the individual material items and quantities being proposed.
  5. Failure to list parts, components, assemblies or services that will be performed by subcontractors when significant amounts are involved.
  6. Significant differences resulting from unit prices proposed being based on quantities substantially different from the quantities required.
  7. Subcontract assist audit reports indicate significant problems with access to records, unsupported costs, and indirect expense rate projections.
  8. No explanation or basis for the pricing method used to propose significant interorganizational costs.
  9. No time-phased breakdown of labor hours, rates or basis of proposal for significant labor costs.
  10. No indication of basis for indirect cost rates when significant costs are involved.
  11. The contractor does not have budgets beyond the current year to support indirect expense rates proposed for future years (but see this posting).
Just because the auditor reports these deficiencies, does not mean the audit will be terminated. The contracting officer often requests the auditor to do the best he/she can under the circumstances. The auditor usually will acquiesce to the contracting officer's wishes but will issue a an adverse opinion report (e.g. the proposal is not acceptable as a basis for negotiating a fair and reasonable price).

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