Thursday, June 6, 2013

The Government's Initiative to Improve Contractor Proposals

In the past few months, the FAR Councils issued two proposal related checklists, one as a final rule (Proposal Adequacy Checklist) and the other as a proposed rule (Forward Pricing Rate Proposal Adequacy Checklist). We reported on those checklists here and here. Variations of these checklists have been around for some time, notably on DCMA (Defense Contract Management Agency) and DCAA (Defense Contract Audit Agency) websites but never required from contractors. Now, they are or will soon be part of the acquisition regulations and contractors will be required to complete these and submit them with proposals when certified cost or pricing data is required.

Inadequate contractor proposals have always been barriers to performing effective, and especially timely audits and reviews. Inadequate proposals are certainly not new. They existed in the early 70s when we were cutting our government contracting teeth and they continue to this day. Of course, sometimes "adequacy" is a matter of judgment - the Government often wants more than contractors believe is required by regulation. Many contractors are fond of scrimping on support and writing something like "data available upon request". Well, usually data available upon requires is not so readily available when requested.

The Government could return inadequate proposals to contractors to be fixed but that's not always practical. The exigencies of getting something under contract make that impractical if not impossible. Almost every auditor has heard the contracting officer; referring to an inadequate proposal, say something like "yeah, I know, but do what you can in the time you have". Well, when dealing with a finite amount of hours, time spent trying to understand or "fix" an inadequate proposal is time not spent elsewhere - like performing actual audit testing.

Some of the more common proposal deficiencies identified by the Government include:

  • Variances between proposed amounts and basis of estimate/supporting documentation. This should be obvious - there has to be a direct link.
  • Variances between prior buy actual cost data and proposed amounts without supporting justification/explanation. If the history is not applicable, explain why.
  • Lack of consolidated bills of materials. 
  • Unsupported additive factors applied to various elements of costs often leading to duplicate costs proposed.
  • Rates not based on contractor budgetary and/or trend data
  • Proposal does not reflect anticipated cost accounting changes
  • Subcontract proposal deficiencies including inadequate prime contractor cost or price analysis and inadequate support to demonstrate fair and reasonable commercial pricing.

The new checklists should set out clear expectations to contractors on required components for contract proposals. These checklists are based on FAR Part 15.40-8, Table 15-2 requirements so they do not represent anything that hasn't been required all along. The difference now is that contractors must complete the checklist and document that it has satisfied all items.

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