Friday, June 17, 2011

Defective Pricing Lead Sheets - Part 4

This week we have been discussing the Government's practices and methods for selecting contracts to perform defective pricing reviews. The Government's selections of contracts to review for defective pricing are not ramdon. The selection is based on a number of risk factors that include contract value, audit leads, and prior experience. In this series of posts, we've been concentrating on the audit lead sheets and the methods used by the Government to assign "probability" ratings to specific contracts. If you missed the earlier posts in this series, you can read them here: Part 1, Part 2, and Part 3.

Contractors with effective estimating systems will generally have lower probability ratings than those that do not. And, since the estimating system is one of the six business systems subject to payment withholds when found to be inadequate, there is extra incentive to ensure that an adequate system has been developed and implemented.

Here are a few tips that should be incorporated into your estimating system policies and procedures and should help lower your "Defective Pricing Probable" rating at the same time.

1. Recognize that the requirement to submit costs or pricing data is a process, not an event. The process extends from the initial stages of proposal preparation right up until the date of agreement on price.

2. When you provide cost or pricing data subsequent to submitting the proposal, inform the Government its impact on the proposed price.

3. Submit everything in writing. That way there can never be an argument about whether it was submitted or not.

4. Explain why certain cost or pricing data was not used. For example, if there is history available but that history is not relevant to the current proposal, disclose the fact that history exists but was not used and state the reason for not using it.

5. If you make any accounting system changes, describe for the Government the impact that those changes will have on all active proposals.

6. If there is any uncertainty regarding make/buy decisions, make certain that you inform the contracting officer of that uncertainty and the potential impact on the contract price of going one way or the other.

7. Perform a "sweep". Just prior to settling on a price, go back to your company and involve anyone that had anything to do with preparing the proposal to make one last check to ensure that the most current, complete, and accurate cost or pricing data was submitted.

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