What are six "Proposal Analysis Techniques?"
1. Price Analysis
2. Cost Analysis
3. Cost Realism Analysis
4. Technical Analysis
5. Unit Prices
6. Unbalanced Pricing
What is a "Price Analysis?"
The process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit.
Use when: Certified cost or pricing data are not required.
What is a "Cost Analysis?"
The review and evaluation of the separate cost elements and profit in an offeror's or contractor's proposal, and the application of judgment to determine how well the proposed costs represent what the cost of the contract should be.
Use when: Evaluating the reasonableness of individual cost elements when certified cost or pricing data are required. The Government may use price analysis to determine the overall price fair and reasonable in conjunction with cost analysis. Cost analysis is never performed on sealed bids.
What is a "Cost Realism Analysis?"
The process of independently reviewing and evaluating specific elements of each offeror's proposed cost estimate to determine whether the estimated proposed cost elements:
(i) are realistic for the work to be performed;
(ii) reflect a clear understanding of the requirements; and
(iii) are consistent with the various elements of the offeror's technical proposal. The "probable cost" should reflect the Government's best estimate of the cost of a contract that is likely to result from the offeror's proposal.
Use when: Determining the probable cost of performance for each offeror on a cost reimbursement type contract. Cost realism analysis may be used on competitive fixed- price incentive contracts or, in exceptional cases, on other competitive fixed-price contracts when
(i) new requirements may not be fully understood by competing offerors,
(ii) there are quality concerns, or
(iii) past experience indicates that contractors proposed costs have resulted in quality or service shortfalls.
What is a "Technical Analysis?"
Used for examining: (i) Types and quantities of material proposed and the need for the types and quantities of labor hours and the labor mix. (ii) Any other data that may be pertinent to an assessment of the offeror's ability to accomplish the technical requirements or to the cost or price analysis of the service or product being proposed should also be included in the analysis.
Use when: The contracting officer wants to determine the need for and the reasonableness of the proposed resources, assuming reasonable economy and efficiency.
What are "Unit Prices?"
Unit prices must reflect the intrinsic value of an item or service and be in proportion to an item's base cost (e.g., manufacturing or acquisition costs). Any method of distributing costs to line items that distorts the unit prices shall not be used. For example, distributing costs equally among line items is not acceptable except when there is little or no variation in the base cost.
Use when: Except for the acquisition of commercial items, contracting officers shall require that offerors identify in their proposals those items of supply that they will not manufacture or to which they will not contribute significant value, unless adequate price competition is expected.
What is the "Unbalanced pricing?"
Unbalanced pricing may increase performance risk and could result in payment of unreasonably high prices. It exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly over- or understated as indicated by the application of cost or price analysis techniques. The greatest risks associated with unbalanced pricing occur when — (i) Startup work, mobilization, first articles, or first article testing are separate line items; (ii) Base quantities and option quantities are separate line items; or (iii) The evaluated price is the aggregate of estimated quantities to be ordered under separate line items of an indefinite-delivery contract.
Use when: All offers with separately priced line items or subline items shall be analyzed to determine if the prices are unbalanced.
What are the methods used in "price analysis?"
(i) Comparison of proposed prices received in response to the solicitation
(ii) Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items
(iii) Use of parametric estimating methods/application of rough yardsticks
(iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements
(v) Comparison of proposed prices with independent Government cost estimates
(vi) Comparison of proposed prices with prices obtained through market research for the same or similar items
(vii) Analysis of pricing information provided by the offeror
What are the preferred techniques used in "price analysis?"
(i) Comparison of proposed prices received in response to the solicitation
(ii) Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items
— are the preferred techniques.
During cost analysis, you will evaluate
(i) the necessity for and reasonableness of proposed costs;
(ii) projections of cost trends,
(iii) technical appraisals of estimated labor, material, tooling, facilities, plant, scrap; and (iv) the application of rates such as those for indirect costs and labor.
During cost analysis, you will also compare the proposed cost elements with
(i) actual costs;
(ii) previous cost estimates for same or similar work;
(iii) other cost estimates;
(iv) independent Government estimates; and (v) forecasts of planned expenditures.
Cost realism analysis is used to determine what?
If the proposed cost is:
(i) realistic for the work to be performed;
(ii) reflects a clear understanding of the requirement; and
(iii) is consistent with the approach outlined in the contractor's proposal.
For cost-type contracts, cost realism analysis is used to determine what?
The most probable cost of contract performance to the Government. The probable cost is determined by adjusting each offeror's proposed cost (and fee when appropriate) to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis. The probable cost may differ from the proposed cost and should reflect the Government's best estimate of the cost of any contract that is most likely to result from the offeror's proposal. The probable cost is used for evaluating contract proposals to determine the best value.
What else do you use a Cost realism analysis for?
competitive Fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts when: (i) new requirements may not be fully understood by competing offerors, (ii) there are quality concerns, or (iii) past experience indicates that contractors' proposed costs have resulted in quality or service shortfalls. Results of the analysis may be used in performance risk assessments and responsibility determinations. However, proposals must be evaluated using the criteria in the solicitation. The offered prices cannot be adjusted as a result of the analysis.
There are three structured approaches
(A) The weighted guidelines (WGL) method;
(B) The modified weighted guidelines method; and
(C) An alternate structured approach.
Cost or Pricing Data:
All facts that, as of the date of price agreement or an earlier date agreed upon between the parties, prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental, and are verifiable. While they do not indicate the accuracy of the prospective contractor's judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred.
Certified Cost or Pricing Data:
Cost or pricing data that were required to be submitted and have been certified, or are required to be certified. This certification states that, to the best of the person"s knowledge and belief, the cost or pricing data are accurate, complete, and current as of a certain date before contract award.
Data Other Than Certified Cost or Pricing Data:
Pricing data, cost data, and judgmental information necessary for the contracting officer to determine a fair and reasonable price or to determine cost realism. Such data may include the identical types of data as certified cost or pricing data, but without the certification. The data may also include, for example, sales data and any information reasonably required to explain the offeror's estimating process.
Any cost that is identified specifically with a particular final cost objective. Direct costs are not limited to items that are incorporated in the end product as material or labor. Costs identified specifically with a contract are direct costs of that contract.
Facilities Capital Cost of Money:
FCCOM is used to compensate contractors for use of capital without regard to whether the source is owner's equity or borrowed. It is designed to help contractors achieve a return on their investment in facilities capital. It is NOT considered interest on borrowing, which is unallowable according to the FAR.
Fair and Reasonable Price:
A price must be considered fair to both parties. A price that a prudent and competent buyer would be willing to pay is a reasonable price. A fair and reasonable price is dependent on the market conditions, general economic conditions, promised quality, competition, alternative approaches, and timeliness of contract performance.
Forward Pricing Rate Agreement:
A written agreement negotiated between a contractor and the Government to make certain rates available during a specified period for use in pricing contracts or modifications.
General and Administrative Expense:
Any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole.
Any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives (i.e. contracts) or with at least one intermediate cost objective.
Indirect Cost Rate:
A percentage or dollar factor that expresses the ratio of indirect expense incurred in a given period to an appropriate base for the same period.
What are among the exceptions to the requirement for obtaining certified cost or pricing data above the TINA threshold?
1. When the contracting officer determines that prices agreed upon are based on adequate price competition;
2. When the contracting officer determines that prices agreed upon are based on prices set by law or regulation;
3. When a commercial item is being acquired;
4. When a waiver has been granted by the Head of the Contracting Activity; or
5. When modifying a contract or subcontract for commercial items.
You are a contracting officer who is negotiating with a contractor to purchase supplies. You know that, on the previous contract, the contractor suffered a financial loss due to inaccurate pricing of his own proposal.
Are you permitted to consider the loss from the contractor's previous effort when negotiating with the contractor on the current effort?
Which represents a proposal analysis technique that must be performed on cost reimbursement contracts to determine the probable cost of performance for each offeror?
Cost realism analysis
You have a requirement to purchase commercial cameras that can detect Improvised Explosive Devices (IEDs) from an altitude of 15,000 feet. These cameras will be hung on military aircraft and transmit data back to battlefield commanders to assist their infantry patrols in locating and destroying the IEDs. The total dollar value of these cameras is $7 million. Through market research, you know there are three sources who can supply these cameras. You are also aware that they sell these to commercial firms for agricultural, traffic and other purposes. You anticipate that all three sources will provide a proposal for these cameras and that you will award a firm-fixed-price contract. Would CAS apply?
No, CAS would not apply. See 9903.201-1(b)(6) and (15). The cameras meet the definition of a commercial item; you anticipate the award of a firm-fixed-price contract; and you expect adequate price competition without the submission of certified cost or pricing data.
You have a requirement to procure electric service for Fort Boone, KY. The contract was awarded to Bluegrass Power and Light, a company whose rates are regulated by the Kentucky Public Utilities Company. The $12.5 million contract value was determined by applying the fixed rate per kilowatt-hour (unit price) to the estimated number of kilowatt-hours to be delivered. Is the contract subject to CAS?
No, CAS does not apply. See 9903.201-1(b)(5). This commodity is set by law or regulation.
You award a sole source contract for Advisory and Assistance Services valued at $550,000. Does CAS apply?
No, CAS does not apply. The contract falls under the relevant dollar threshold (see 9903.201-1(b)(2)).
The CAS rule-making process:
- The CAS Board operates independently from the FAR Council.
- There may be a lag time between an increase in the CAS threshold and the TINA threshold.
True or False: The contracting officer is not authorized to award a CAS-covered contract until the Cognizant Federal Agency Official (CFAO) makes a written determination that the Disclosure Statement is adequate.
Assign one or more cost items to one or more cost objectives. This includes both direct assignment of cost and the reassignment of a share from an indirect cost pool.
Assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. It must—
(a) Be incurred specifically for the contract
(b) Benefit both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or
(c) Be necessary to the overall operation of the business
A cost that complies with all of the following requirements:
(3) Standards promulgated by the CAS Board or generally accepted accounting principles (GAAP) (4) Contract terms
(5) Limitations set forth in FAR Part 31
Any cost that, under the provisions of any pertinent law, regulation, or contract, cannot be included in prices, cost-reimbursements, or settlements under a Government contract to which it is allocable.
A cost that does not exceed that which would be incurred by a prudent person in the conduct of competitive business.
The process of forecasting a future result in terms of cost, based upon information available at the time.
Amounts determined on the basis of costs incurred, as distinguished from forecasted costs. Actual costs include standard costs properly adjusted for applicable variances.
The cost (except for general and administrative expenses) for contract costing purposes that is allocable to the production of goods and services during a cost accounting period.
A function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc.
Final cost objective
A cost objective that has allocated to it both direct and indirect costs and is one of the final accumulation points in the contractor's accumulation system.
A charge to current operations that distributes the cost of a tangible capital asset, less estimated residual value, over the estimated useful life of the asset in a systematic and logical manner.
What type of cost is "Cost of souvenirs, models, imprinted clothing, buttons, and other mementos provided to customers or the public. Cost of souvenirs, models, imprinted clothing, buttons, and other mementos provided to customers or the public?"
What type of cost is "Sponsorship of employees participation in a company sponsored "Run for the Cure" sports team. Sponsorship of employees participation in a company sponsored "Run for the Cure" sports team?"
Chartering an aircraft for business purposes. Chartering an aircraft for business purposes.
Allowable with restrictions
What is a cost that is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship?
Which four elements are among those necessary for a cost to be considered "allowable" according to FAR Part 31?
Standards promulgated by the CAS Board Terms of the contract
True or False: The FAR prohibits contractors from treating a direct cost as an indirect cost, regardless of the dollar value of the direct cost.
This is an essential element of certified cost or pricing data
The cost or pricing data are accurate, complete, and current as of a certain date before contract award.
This characterizes a Fair and Reasonable Price
A price that a prudent and competent buyer would be willing to pay is a reasonable price.
This statement describes the difference between the terms Cost and Price.
Cost plus any fee or profit applicable to the contract.
This cost category applies to the travel expenses incurred by a contractor for training that provides general business knowledge.
According to the FAR, this is the primary prohibition on obtaining certified cost or pricing data.
The primary prohibition on obtaining certified cost or pricing data is for acquisitions at or below the simplified acquisition threshold (SAT)
This statement is true if the government relies on cost or pricing data and that data is found to be defective after award
Government is entitled to a price adjustment, including profit or fee, of any significant amount by which the price was increased because of the defective data.
In DoD, this is not among the exceptions to the truth in negotiations act (TINA).
Award to small business.
This statement is true the total contract price in a defective pricing situation.
As a result of defective pricing, a contract total price can never increase.
This exists when one or more contract line item is significantly overstated or understated as indicated by the application of cost or price analysis techniques.
This is used specifically for determining the probable cost of performance for each offeror.
Cost Realism Analysis
This is one of the two preferred techniques identified in the FAR for performing price analysis
Comparison of proposed prices received in response to the solicitation
This christian doctrine, which applies to CAS permits this
The incorporation of mandatory contract clauses by operation of law.
This person is ultimately responsible for determining the adequacy of the disclosure statement.
Cognizant Federal Agency Official
This is the cost principle term that prefers to any cost that cannot be included in prices, cost reimbursements, or settlements under a government contract to which it is allocable.
This refers to a charge to current operations that distributes the cost of a triangle capital asset, less estimated residual value, over the estimated useful life of the asset.
What are the exemptions to the CAS?
Exemptions to the Cost Accounting Standards are if contracts are based on established or market prices or fixed by law or regulation, small businesses, and all contracts awarded using sealed bidding.
Using the CAS Coverage and Disclosure Statement Determination flowchart, determine if the original (basic) BBOMS contract is subject to CAS?
Yes, none of the listed exemptions apply. Since this is a negotiated procurement in excess of $7.5M, the contract is covered by the Cost Accounting Standards.
Select the Resources tab to review the BBOMS contract and then answer the following question. Now that you have determined that the BBOMS contract is subject to CAS, what level of coverage is applicable?
Note: Technology and Support Services has never received a CAS covered contract either in the current or preceding Cost Accounting Period.
Full coverage since the contract award is for $50M or more.
Look at the BBOMS contract again. Which of the following statements is true?
Since the BBOMS contract is subject to full CAS coverage, TSS is required to submit a Disclosure Statement to the CFAO and the Cognizant Auditor.
Allowable cost with restrictions
Do not allow proposed or actual costs that exceed the limit set forth in the cost principle.
Costs not specifically addressed
The fact that a cost is not specifically mentioned does not imply that it is either allowable or unallowable. FAR 31.204(d) requires that the determination of allowability shall be based on the contract cost principles in FAR Part 31 and the treatment of similar or related selected items in FAR Part 31.205.
A cost is allowable if it _____________________.
is IAW CAS or GAAP as applicable
is IAW the terms of the contract
is IAW FAR Part 31
A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. A cost is allocable to a government contract if it _________________. Select all of the correct answers.
is incurred specifically for the contract.
is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.
benefits the contract and other work, and can be distributed to them in reason
A contractor proposes to use a Level III Engineer for a particular task order under a cost reimbursement CLIN. The Level III Engineer labor rate is $85.00 per hour.
Your technical specialist informs you that the level of effort required under this task is suitable for a Level I Engineer. The contractor proposes 40 hours to perform the task. Your technical specialist informs you that it should take the Level I Engineer approximately 35 hours to perform this task.
Is the cost for engineering labor reasonable for this task? Select all of the correct answers.
No, in order for a cost to be reasonable it must be, in both nature and amount, what a prudent business person would pay in the conduct of a competitive business.
No, the burden of proof is on the contractor to demonstrate the reasonableness of the level of engineer and number of hours required.
The prenegotiation objective establishes the government's initial negotiation position and assists the contracting officer in determining a fair and reasonable price.
How does proposal modeling assist the contracting officer in achieving these objectives?
Validates the contractor's computations
Validates the contractor's proposal summary with detailed back-up data worksheets
Allows real time calculation of offers and counteroffers during negotiations
Facilitates update of prenegotiation position upon receipt of updates from the contractor (e.g., updated quotes, subcontractor submissions, change in rates)
Allows the government to identify differences between the contractor's proposed amounts and the prenegotiation position due to fact-finding results, field pricing assistance, independent government estimates and analysis
What are characteristics of an acceptable cost estimating system?
- Provides for detection and timely correction of errors
- Identifies the sources of data and the estimating methods and rationale used in developing cost estimates
- Provides a written description of the organization and duties of the personnel responsible for preparing, reviewing, and approving cost estimates
What are the disadvantages of an inadequate Cost Accounting System?
It will provide data that is not current, accurate, and complete.
Under which cost accounting system does the firm accounts for output by specifically identifiable physical units?
Select the Resources tab to review the DCAA audit report. After reviewing the report, answer the following question:
What step should you take next?
Contact the DCMA to verify that Technology and Support Services' accounting and estimating systems are still considered adequate.
You are reviewing historical contract information for a firm that has recently submitted a proposal. Which of the following items might be an indication that you will require technical or audit assistance?
- The offeror has a history of not providing adequate cost estimate support
- The offeror has a history of underestimating costs
- In previous contracts, the negotiated price was significantly different than the proposed price
After you have reviewed the contents of the proposal and determined the scope of the audit necessary, select the correct order of the steps required to request Audit Assistance.
Query all acquisition team members.
Contact the cognizant agency by phone to tell them of the upcoming request and to determine the means of communication acceptable for the assistance request.
Commit your request to writing.
What questions are important to ask when evaluating a report's strengths and weaknesses?
- Does the report answer the questions in your request?
- Does the report explain the evaluator's position in clear language that you can understand?
- Does the report support its conclusions?
What situations should you consider subcontractor proposal analysis?
- The business relationship between the prime contractor and the subcontractor is not conducive to independence and objectivity.
- The prime contractor is a sole source and the subcontract cost represents a substantial part of the proposed contract cost.
- The prime contractor has been denied access to the subcontractor's records.
Which of the following are significant contract events which should be identified in a request for field pricing support when negotiating an equitable adjustment?
- Date of submission of initial contract proposal and dollar amount
- Date of alleged delays or disruptions
- Date entitlement to an equitable adjustment was determined or a Contracting Officer decision was rendered
- Dates of any pertinent government actions or other key events during contract performance, which have an impact on the contractor's request for equitable adjustment
What is a direct material cost?
A direct material cost is any material cost that can be identified specifically with a final cost objective.
What is an indirect material cost?
An indirect material cost is any material cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or an intermediate cost objective.
What are Collateral costs?
Collateral costs are those associated with transporting materials into an offeror's plant, and can be treated as either direct or indirect costs depending on the guidelines established by the firm.
Two examples of collateral costs are inbound transportation and intransit insurance.
Review the contractor's proposal. Do you think that the contractor has appropriately classified the construction fencing as a direct material?
No, direct materials are items such as raw materials, parts, sub-assemblies, components, and manufacturing supplies; collateral costs such as in-transit insurance and related costs such as scrap and spoilage.
Which of the following statements is TRUE about the contractor's proposal you just reviewed?
It is a detailed estimate.
Which of the following questions should you ask to identify any proposed direct material that should be classified as an indirect cost?
Is the material cost proposed and accounted for in a manner consistent with the contractor's disclosure statement and documented accounting practices?
Has the offeror consistently treated material similar to the proposed material as direct material?
Which of the following statements are points to consider when analyzing a summary-level estimate?
- Develop and document your pre-negotiation position on direct material quantities required to complete the contract.
- Give special attention to any direct material concerns identified during your preliminary review of the material mix.
- Determine if cost estimating relationships (CERs) used in the proposal were properly developed and applied.
- Develop and document your pre-negotiation position on direct material cost.
To determine if cost estimating relationships (CERs) used in the proposal were properly developed and applied, which of the following questions should you ask?
- Is there any trend in the relationship?
- Does the available information verify the existence and accuracy of the proposed relationship?
- Would use of a detailed estimate or direct cost comparison with actuals from a prior effort produce more accurate results?
- Does the CER estimate consider the changing value of the dollar?
Which of the following statements regarding analyzing detailed cost estimates are TRUE?
- A detailed cost estimate is more costly to develop and analyze than a summary estimate.
- When the contract is complex, there may be individual bills of material for different contract tasks or line items.
- For supply and construction contracts, the estimator will estimate base material requirements using contract drawings.
You are trying to determine if the offeror used an appropriate base for estimating unit material costs under the current circumstances. Which of the following conditions should exist when the offeror bases estimates on current quotes?
- Work will be performed using materials not currently in inventory.
- Material prices may vary significantly from current inventory values.
- There is sufficient proposal preparation time for the off
Did the contractor use the appropriate method of inventory pricing (FIFO) in pricing the proposal?
Yes, according to the contractor's disclosure statement, TTS uses a FIFO method to price inventory.
Read the following situations in which statistical analysis might be used. Which one of the situations is similar to analyzing the contractor's Bill of Materials?
Streamlining the evaluation of a large quantity of data.
Which of the following are measures of absolute dispersion?
- Mean absolute deviation
- Standard deviation
What is the range for the following numbers?
13, 12, 9, 15, 11, 16, 17, 8, 12, 7, 12
Range = Max-Min = 10
The auditor used a 90% confidence interval when selecting the sample size you just viewed. What does this value indicate?
- The level of confidence that the true population mean (or average) is contained within the confidence interval.
- That 90 times out of 100, the actual error rate is expected to fall within the confidence interval computed from the sample results.
- That the auditor is accepting a 10% risk that the populations mean is outside of the confidence interval (5% greater or 5% less).
- The significance level is 10%.
Which of the following are steps used in the process of stratified sampling?
- Apply the decrement factor to the total proposed cost of all items in the stratum.
- Determine the number of items to be sampled in each stratum.
- Identify a stratum of items that merit 100% analysis.
What description can most accurately be categorized as manufacturing direct labor?
Measuring and cutting material used in the outer casing
The Berent's Dining Hall expansion proposal's labor mix consists of one full time equivalent (FTE) Civil Engineer and one FTE Civil Engineering Technician. Is this a reasonable labor mix?
Yes. A technical evaluation provided by Lorena Helmsly concurs with the labor hour estimates in the proposal.
The BBOMS proposal uses the comparison method instead of the round-table method to estimate hours. Which of these situations warrants the use of a round-table estimate?
The contract is for a unique item, and with no historical data available such as detailed drawings or bill of materials.
Round-table estimates are used when there are no historical data available for estimating direct labor costs.
A factor when making labor rate comparisons EXCEPT?
Percentage of indirect costs associated with the labor effort.
- Government labor rate requirements
- The skill mix of the labor effort
- The time period of the labor effort
Based on the information provided by Jessica, which of the following actions is the most correct?
Document your rationale for accepting the skill level, labor rate, and labor hours based on a technical evaluation, DCAA Audit Report, and comparison to the BLS labor statistics for the region. Adjust the contractor's proposed amount by $1,000.
What Labor Law applies to contracts in excess of $2,000 to which the United States or the District of Columbia is a party for construction, alteration, or repair of public buildings or public works within the United States?
The Davis-Bacon Act requires that all contractors and subcontractors performing on federal contracts (and contractors or subcontractors performing on federally assisted contracts under the related Acts) in excess of $2,000 pay their laborers and mechanics not less than the prevailing wage rates and fringe benefits listed in the contract's Davis-Bacon wage determination for corresponding classes of laborers and mechanics employed on similar projects in the area. Davis-Bacon labor standards clauses must be included in covered contracts.
Which of the following company-unique factors should you consider when analyzing direct labor rates?
- Uncompensated overtime
- Paid overtime and shift premiums
- Compensation trade-offs
When you read the audit report, you see that DCAA questioned costs associated with the G&A rate. This means that the DCAA may have questioned:
Executive staff salary costs
Why would an increase in BBOMS' sales projections affect the G&A rate?
G&A rate was reduced because the indirect cost allocation base increased.
The BBOMS contract audit from DCAA accepted the FPRA for Labor Overhead for the Technology and Support Services (TSS) labor overhead pool.
Which of the following items would likely be seen in a detailed labor overhead expense summary for Technology Services and Support Services labor overhead pool?
Employee fringe benefit costs, such as vacation, health care, unemployment, and taxes
In which phase of the cost allocation cycle did DCAA catch the indirect cost rate issue that Jessica discussed with you earlier?
What steps are involved in the overhead rate development process? Select all of the correct answers.
-Estimate indirect cost allocation bases
-Estimate indirect cost rates
-Estimate indirect cost pools for the period
-Estimate sales volume
Proposed Forward Pricing Rates
Rates proposed by the contractor that are the starting point for indirect cost rate analysis and contract pricing
Audit Recommended Rates
Rates developed by Government audit personnel as a result of their review of the contractor's indirect cost rate proposal.
Forward Pricing Rate Recommendations
Rate recommendations developed by the cognizant ACO for all Government buying activities
Forward Pricing Rate Agreement
A bilateral agreement that binds the contractor to proposed the negotiated rates and the Government to accept them in pricing individual contract
The simple regression equation assumes _____________________. Select all of the correct answers.
- There is a linear relationship between the independent and dependent variables.
- The regression equation is used to predict new values of Y based on the known values of X.
When would it be appropriate to use Regression Analysis in contract pricing? Select all of the correct answers.
-In Indirect Cost Rate analysis
-When developing cost estimating relationships
What is the first step of a simple regression analysis?
Collect the historical data required for analysis
What is a Mean Square Regression (MSR)?
MSR = SSR/df
For 2-variable linear regression, the value of df for calculating MSR is always one (1). As a result, in 2-variable linear regression, you can simplify the equation for MSR to read:
MSR = SSR/1 or MSR = SSR
What is a Mean Square Error (MSE)?
MSE = SSE / df
In 2-variable linear regression, df for calculating MSE is always n - 2. As a result, in simple regression, you can simplify the equation for MSE to read:
MSE = SSE (n - 2)
In order to ensure that you fully understand regression analysis, the next several screens will ask you questions specific to the Berent's Dining Hall expansion. Feel free to use the Resources tab at any time to help you answer any of these questions. Let's get started.
What is the independent variable in the case of the Berent's Dining Hall expansion?
The total costs incurred.
A base must be used to allocate the indirect costs (G&A pool expenses). The base should be selected to permit allocation of the cost pool on the basis of benefit accruing to the various cost objectives. Here, a total cost input base was selected and is the independent variable. That is, the G&A pool is dependent upon the TCI.
The r2 for the G&A Rate regression is 98%. What does the 98% signify?
That approximately 98% of the variation in G&A expense can be explained by its relationship with total cost input.
Should you use this estimating equation to predict the G&A pool and calculate the G&A rate to be used in forward pricing?
Maybe. The t-test will assist in making that call. Although rare, conflicts do exist even with a high r-squared due to the small sample size involved.
Per Section 5.4 of the CPRG, Volume 2, Chapter 5, although there is normally a conflict in the decision indicated by the T-test and the magnitude of r-squared, it may occur when there are few data points. When there is a conflict between the T-test and the r-squared, you should accept the decision indicated by the T-test. It is a better indicator than r-squared because it takes into account the sample size through the degrees of freedom.
You have reviewed the statistical output of the regression tool and conducted the t-test. Should you use the estimating equation to predict the pool costs associated with the base of total cost input?
Yes. T of 10.12084635 > t of 2.91998558 at the 90% confidence level.
Using the estimating equation Pool = $5,000,251.85 + (.03418) * (G&A Base) with an estimated base of $64,500,000 yielded a G&A Rate of 11.17%.
What would the rate be if the estimated base was $70,000,000?
According to CPRG, Volume 2, Chapter 5, Section 5.7, the G&A rate calculated using a base of $64,500,000 is only a point estimate, which means it is only the most likely outcome. There could be a range of estimates that are correct.
What would be a reasonable range of G&A rates to consider when developing the estimate?
11.07 - 11.27%
When using the regression tool, take the high and low amounts ($7,138,415 and $7,270,711) and divide each by the base to get the range of rates: 11.07 - 11.27%.
You have decided to use 11.17% as your G&A rate when calculating the G&A expense prenegotiation objective. What is the G&A expense for the Berent's Dining Hall expansion?
If you insert 11.17 into the rates and factors table, the G&A expense is $91,908.08.
In negotiating labor hours for production of a subassembly for a missile system, you notice that the contractor has proposed a 70% learning curve. The contractor contends that due to a major technological change as a result of this engineering change proposal, it will actually cost more per unit initially as the contractor "works the bugs out" of the design. What action do you take?
Negotiate the use of a new curve with a new first unit value and slope.
What is the slope of the learning curve described by the data given below?
Excellent! You can calculate the slope of a curve, by dividing the unit cost into the unit cost at twice the quantity then multiplying the resulting ratio by 100. 1600/2000 = .80 * 100 = 80%
Using the unit improvement curve theory, estimate the labor hours required to produce the 40th unit if 5,000 labor hours were required to complete the 10th unit and the improvement slope is 80 percent.
3200 labor hours
We know the slope is 80% and it took 5,000 labor hours to produce the 10th unit, so we multiply 5,000 by .8 to get the labor hours needed for the 20th unit. We now know that it took 4,000 labor hours to produce the 20th unit. To find the labor hours needed to produce the 40th unit, multiply 4,000 by .8 to get the answer - 3,200 labor hours.
Use this data table to answer the question. Open the improvement curve spreadsheet tool, found in your Resources tab.
LOT QTY START END HOURS
1 2,800 1 2,800 14,700
2 4,700 2,801 7,500 23,030
3 3,820 7,501 11,320 16,808
The current contract calls for a total of 40,000 units. What is the ESTIMATED cost (hours) for the remaining portion of the 40,000 units, assuming it is 1 single lot?
In order to estimate the cost of a lot that has not yet been produced, you must enter your data into the Estimates section of the improvement curve spreadsheet tool. You can always determine the first unit of a lot by adding 1 unit to the previous lot's last unit.
The original contract was acquired under a competitive source selection. Upon review of Section I, you find that the clause at FAR 52.215-17 Waiver of Facilities Capital Cost of Money was included in the contract. What should you do?
Remove the $3598.97 from the prenegotiation objective, which is an unallowable cost IAW FAR 15.408(i).
IAW FAR 15.408(i), if the contractor does not propose FCCOM, the contracting officer is required to insert the clause at FAR 52.215-17 into the resultant contract and any FCCOM is considered an unallowable cost.
Analysis of profit is based on the premise that it is in the government's interest to offer contractors opportunities for financial rewards sufficient to _________________. Select all of the correct answers.
Attract the best capable and qualified contractors.
Stimulate efficient contractor performance.
What constitutes Performance Risk? Select all of the correct answers.
-Addresses the contractor's degree of risk in fulfilling contract requirements.
-Consists of two parts: Technical and Management/cost control.
Which of the following factors are issues to consider when determining contractor risk and return on profits?
- Job complexity.
-Requirements for technical equipment.
- Is this a first time requirement, or has this been accomplished before?
- Is there material, labor, indirect costs and other costs to be managed?
- What is the contract type?
- What is the cost risk?
The weighted guidelines in our structured approach focuses on several profit factors. Which of the following are the correct profit factors to consider as you develop your prenegotiation profit/fee objective? Select all of the correct answers.
- Performance Risk
- Contract Type Risk and Working Capital Adjustment
- Facilities Capital Employed
- Cost Efficiency
Which of the following are factors of most successful negotiations?
- Effectively prepare and plan
- Communicate effectively
- Foster team cooperation
- Apply good business judgment
What is the most accurate definition of cost drivers?
Aspects of the proposal or contract requirements that if changed would have a major impact on contract price.
Which of the following are examples of cost drivers?
Aspects of the proposal or contract requirements that if changed would have a major impact on contract price.
Which of the following are examples of cost drivers?
- Delivery requirements
- Contract terms
- Technical requirements
In preparing your prenegotiation documentation, you should document which of the following? Select all of the correct answers.
- Your position on each of the key elements that will define the contract pricing arrangement
- The purpose of the negotiation
- Any unique aspects of the procurement action
- A summary of the contractor's proposal