Thursday, July 18, 2013

Proposal Adequacy - Table 15-2 - Cost Elements

We're continuing our series on how to ensure your pricing proposal is adequate before submitting it to the Government. It wasn't that long ago when proposal adequacy was not such a big deal. It was always a big deal with the auditors, but complaints to contracting officers were often met with something akin to "Well, do the best you can". Recently however, contracting agencies, and especially the Department of Defense, have come to realize that poorly prepared and supported proposals really do cause delays in negotiating contracts, not to mention an expenditure of more human resources than the Department is willing to squander. This realization led to two new checklists incorporated into the DoD FAR Supplement; one for pricing proposals and the other for forward pricing rate proposals (the latter is still a proposed regulation but we expect it to become final very shortly). The regulations accompanying these checklists require that contractors complete and submit them with their proposals.

Today we want to briefly discuss the basic requirements for the various cost elements that typically comprise a prospective contractor's proposal. You can refer to Table 15-2 for more detailed information. You can also refer to the DoD checklists to see how the Government "interprets" some of these requirements.

Materials. Contractors are required to provide a consolidated priced summary of individual material quantities included in the various tasks, orders, or contract line items being proposed and the basis for pricing (e.g. vendor quotes, invoice prices, inventory, etc). This includes raw materials, parts, components, assemblies and services to be produced or performed by others.

For all proposed items, the regulations require that you identify the item and show the source, quantity, and price. Contractors are also required to conduct cost or price analyses of all subcontractor proposals, as appropriate and include the results of those reviews as part of their own proposal.

Labor. Contractors (or prospective contractors) are required to provide a time-phased (e.g. monthly, quarterly, etc) breakdown of labor hours, rates, and cost by appropriate category and furnish bases for estimates of both required hours and hourly rates.

Other costs. Contractors must list all other costs not otherwise included in other categories. These would include special tooling and test equipment, travel, computer and consultant services, preservation, packaging and packing.

Indirect costs. Contractors must indicate how they computed and applied indirect costs, including cost breakdowns. They must show trends and budgetary data to provide a basis for evaluating the reasonableness of proposed rates. They must indicate the rates used and provide an appropriate explanation.

FCCM (Facilities Capital Cost of Money). When contractors elect to claim facilities capital cost of money as an allowable cost, they must also submit Form CASB-CMF and show the calculation of the proposed amount. We often see instances where contractors do not propose FCCM. Those that don't, are leaving money on the table.

Recently, we've seen a significant increase in the number of proposals rejected because they did not meet one or more of these requirements. Don't give the Government an excuse for rejecting one of yours.

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