Tuesday, March 25, 2014

Estimating System Policies and Procedures and Compliance Therewith

There are several kinds of estimating deficiencies. A contractor may have no estimating policies and procedures. They just wing it as they go. This is common for start-ups and very small companies that perhaps submit a proposal once every two or three years. There are companies that have made a stab at developing estimating policies and procedures but haven't really refined them to meet their particular circumstances. Contractors who buy an "off-the-shelf" product and don't bother to tailor it to their environment fall into this category. These are easy to spot because they'll assign responsibilities to positions that don't even exist. One of the more amusing examples of this was a two-man company that had bought a canned estimating system handbook off the internet which had duties and functions for estimators, supervisors, purchasing agents, head of contracts, VP Finance, and CEO. These two guys, both engineers, were clueless when it came to estimating techniques, but they proudly pulled out their manual when asked whether they had written estimating policies and procedures.

A third deficiency that often arises is the company that has good, sound, and adequate estimating policies and procedures but fails to follow them. This situation results in "slam-dunk" findings by auditors and contracting officers. Sometimes its better to have no policies at all then to have policies and fail to follow them. First of all, failure to comply is a deficiency in and of itself and once reported, will launch a flurry of paperwork and corrective action plans, and followup reviews. But secondly, and more importantly, failure to follow policies raises the auditors suspicions and they are more apt to dig down deep. Its a pernicious finding, the effects that may not be seen right away. Perhaps the policy requires two or more competitive quotations for a purchased part but the contractor solicited only one and there is no sole-source justification. Perhaps the policy requires supervisory review and approval of estimates over a certain threshold but the estimator did not obtain one. Does that estimator know that his estimate won't stand up to scrutiny?

There are a number of cost estimating deficiencies where, if encountered during the evaluation of a price proposal, will automatically result in a notification to the ACO (administrative contracting officer) or the PCO (procuring contracting officer), or should if the auditor were following the guidance in CAM (DCAA Contract Audit Manual) 9-310. These include,

  1. The use of incorrect, incomplete, or non-current data
  2. The use of inappropriate estimating techniques
  3. The failure to consider or use all applicable factors or necessary techniques
  4. The improper use of an estimating technique
  5. An apparent deliberate concealment or misrepresentation of the data supporting the estimate either in the historical data from prior contracts or in the supporting documents prepared specifically for the proposal
  6. The failure to estimate in a manner consistent with the disclosed or established accounting procedures as required by CAS (Cost Accounting Standards) 401.

We believe that every contractor needs written estimating system policies and procedures. The level of detail and comprehensiveness of the policies and procedures will vary according to the size and configuration of the company and the level of estimating activities (i.e. number of proposals submitted to the Government). It is not sufficient to merely have the policies - its just as important to adhere to those policies.

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