Source Selection Training Cost/Price Evaluation Reimbursable Contracts Module 2 – Cost Reimbursable Contracts Welcome to the AF Cost and Price Evaluation in Source Selection Training Session. This is a just-in-time briefing presented for your information as you prepare to evaluate cost/price proposals in a source selection. This training is open to all Source Selection team members however it is geared to the Cost/Price Analyst. This section may also apply to Fixed Price Incentive (FPI) type contracts. Updates made for AFAC 2008-0128, 28 Jan 2008 Date: Mar 2008 11/6/2018

Cost Overview Learning Objectives Role of Cost/Price Analyst or Team Products Cost Evaluation Documents Lessons Learned These are the topics we will discuss in this module. 11/6/2018

Learning Objectives Understand role as member of Cost/Price Team Identify products of Cost/Price Team Know expectations of your Cost/Price Team Lead Many Source Selections may not have a team. This information applies whether there is a team or just one individual. 11/6/2018

Role of Cost Team Evaluate realism and reasonableness and develop the Most Probable Cost (MPC) for each offeror and assign Cost/Price Risk Factor rating, if applicable Assess financial executability (budget) Participate in briefings when appropriate e.g., Oral presentations, and Initial, Competitive Range, Final, and Decision Briefings, etc. Provide cost inputs for the Simplified Source Selection Report (SSSR) or Proposal Analysis Report (PAR) Price Competition Memorandum (PCM), and Source Selection Decision Document (SSDD) Document Most Probable Cost and any Cost/Price Risk Factor rating for offerors in the competitive range PAR is for large source selections - over $100 M A Simplified Source Selection Report (formerly PER) is required for source selections under $10M and …discretion of the SSA Most Probable Cost and Cost/Price Risk Factor rating will be documented in detail in the PCM and/or SSSR/PAR. AFFARS MP5315.304, Paragraph 4.4.1.4, states that a Cost/Price Risk Factor is required for all ACAT programs, SDD phase programs that use a Cost Reimbursement or Fixed-Price Incentive type contract structure. The Cost/Price Risk rating assesses the degree to which an offeror’s cost proposal compares with the government’s computed Most Probable Costs (MPC). Cost/Price Risk shall be a significant evaluation factor. If a Cost Reimbursement or Fixed-Price Incentive type contract is used for non-ACAT acquisitions and a government MPC is compute, with SSA approval, a risk rating may be assigned. 11/6/2018

Cost Team Products Proposal checklist (if necessary) Evaluation Notices (ENs) Cost charts for all briefings Most Probable Cost for each offeror Cost/Price Risk Factor Rating Cost portions of SSSR/PAR, PCM, SSDD Cost section for debriefings You can create a proposal checklist utilizing Section L requirements. Cost Charts may vary with the unique circumstances of each Source Selection. 11/6/2018

Purpose - Evaluate for reasonableness, realism Cost Evaluation Purpose - Evaluate for reasonableness, realism Reasonableness: For a price to be reasonable, it must represent a price to the government that a prudent person would pay when consideration is given to prices in the market Realism: Offeror’s proposed cost are Realistic for the work to be performed; Reflective of a clear understanding of the requirements; and Consistent with the unique methods of performance and materials described in the offeror’s technical proposal Products – Most Probable Cost (PC) for each offeror Cost/Price Risk Factor Rating (if applicable) Policy set forth in FAR 15.402(a)—Contracting officers must purchase supplies and services from responsible sources at fair and reasonable prices. FAR 15.404-1(d), Cost Realism Analysis. (1)” Cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror’s proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed; reflect a clear understanding of the requirements; and are consistent with the unique methods of performance and materials described in the offeror’s technical proposal.” Ref DOD Contract Pricing Reference Guide: http://www.acq.osd.mil/dpap/contractpricing/chap-index.htm 11/6/2018

Cost Evaluation Why? Reasonableness Cost Realism Most Probable Cost FAR requirement – usually established by adequate price competition Cost Realism Required for cost reimbursable type contracts May be used for fixed price incentive type contracts Required to determine the cost of performance for each offeror Most Probable Cost The SSA uses MPC in the source selection decision process MPC may differ from proposed cost and should reflect the government’s best estimate of contract cost Cost/Price Risk Factor This evaluation factor shall be used for ACAT, SDD phase programs that use a cost reimbursement or fixed-price incentive type contract structure Cost/Price Risk rating assesses the degree to which an offeror’s cost proposal compares with the Government’s best estimates of the offeror’s Most Probable Costs (MPC) AFFARS MP5315.304, paragraph 4.4.1.4. Cost/Price Risk. “This evaluation factor shall be used for Acquisition Category (ACAT), SDD phase programs that use a Cost Reimbursement or Fixed-Price Incentive type contract structure. The Cost/Price Risk rating assesses the degree to which an offeror’s cost proposal compares with the government’s best estimate of the offeror’s Most Probable Cost (MPC). Cost/Price Risk shall be a significant evaluation factor. If a Cost Reimbursement or Fixed-Price Incentive type contract is used for non-ACAT acquisitions and a government MPC is computed, a Cost/Price Risk Rating may be assigned with SSA approval.” AFFARS MP5315.3, IG5315.3, paragraph 4.4.1.4 (ref 1), The purpose of the risk rating is to provide information to the SSA that allows selection of an offeror who proposed a rational and realistic cost for the work to be accomplished. Through the RFP, the Air Force team must communicate to all offerors our deep concern for risk to our programs that is associated with overly optimistic or unrealistic cost or price proposals. We must clearly convey to all offerors that submitting costs or prices based on unrealistic or overly optimistic development outcomes may result in that offeror not being selected for award. 11/6/2018

Reasonableness – Price Analysis Adequate Price Competition (APC) - FAR 15.403-1(c) A price is based on APC if: Two or more responsible offerors, competing independently, submit priced offers that satisfy the government’s requirement and if Best value source selection, price is a substantial factor There is no finding the price of the otherwise successful offeror is unreasonable There was a reasonable expectation that two or more independent, responsible offerors would submit priced offers even though only one is received and The CO can conclude the offer was submitted with the expectation of competition Reasonable determination that proposed price is based on APC and approved at a level above the CO Price analysis demonstrates reasonableness The determination of Adequate Price Competition is an important step in conjunction with the cost evaluation. FAR 15.403-1(c)(1) provides the coverage of adequate price competition. 11/6/2018

What info may be used to support the cost realism evaluation? Cost Evaluation What info may be used to support the cost realism evaluation? Audit Reports Technical Evaluations/IGE Forward Pricing Rate Agreements (FPRA) or Recommendations (FPRR) Recent Program History Wage Determinations Cost Models Published cost/price indices Compare to analogous efforts Market Information 11/6/2018

DCAA Available Services Cost Evaluation DCAA Available Services Determine adequacy of offerors’ accounting systems Determine financial capability of offerors Audits for cost realism to ensure offeror proposals are compliant with their standard estimating and disclosed practices based on all accurate historical data that might be relevant Review specific areas of offeror proposals (e.g. direct and indirect rates, bills of materials) Applicable to prime, major subcontractors, team members Contact your on site DCAA Financial Advisor or cognizant DCAA office for more information and assistance. 11/6/2018

Steps for evaluation of each proposal Cost Evaluation Steps Steps for evaluation of each proposal Read and Understand Sections L&M of RFP and Acquisition Strategy Read proposal!!! Check proposal against the RFP Section L or Proposal Checklist. Was everything provided? Develop ENs to obtain missing items and clarifications Assess proposal against Budget for affordability Draft ENs and submit to the Contracting Officer. The only person authorized to contact an offeror is the Contracting Officer. 11/6/2018

Steps for evaluation of each proposal (cont’d) Cost Evaluation Steps Steps for evaluation of each proposal (cont’d) Coordinate with Technical Team: Understand requirements, make sure everything is proposed! Cross reference cost proposal against technical proposal Is the offeror pricing what is technically proposed? Has Tech Team conducted tech evaluations, such as Do proposed hours support content and schedule? Are types/quantities of material, facilities appropriate? Review parametric estimate inputs Scrutinize areas of risk, quantify magnitude for offset 11/6/2018

Steps for evaluation of each proposal (cont’d) Cost Evaluation Steps for evaluation of each proposal (cont’d) Material and Subcontract Costs: Emphasis on high dollar items Understand the basis of estimate How firm are the proposed quotes/prices? Rough Order of Magnitude (ROM) versus purchase order Were subcontracts awarded competitively? What type of adjustments were taken by the prime? Contract type is an indicator of cost risk Firm Fixed Price through Cost Reimbursable DCAA can assist 11/6/2018

Steps for evaluation of each proposal (cont’d) Cost Evaluation Steps Steps for evaluation of each proposal (cont’d) Teaming (if applicable): Review teaming agreement Understand who does what Evaluate each team member or subcontractor Same criteria as prime Same technique/level of detail as prime Assist Audits (if obtaining prime audit) Teaming refers to the arrangements between contractors in a single proposal 11/6/2018

Steps for evaluation of each proposal (cont’d) Cost Evaluation Steps for evaluation of each proposal (cont’d) Rate evaluation- check rates against FPRA, FPRR, look for errors (DCMA/DCAA can assist) Identify areas of cost risk and quantify Quantify Other Government Costs (OGCs) Calculate Most Probable Cost Assign a Cost/Price Risk Rating if applicable If the offeror does not have a formal FPRA or FPRR, DCAA can provide recommendations. The Cost/Price Risk rating assesses the degree to which an offeror’s cost proposal compares with the government’s best estimate of the offeror’s Most Probable Cost (MPC). Cost/Price Risk assessment uses the ratings set forth in AFFARS MP5315.3, Paragraph 5.5.4, Table 4: Low, Moderate, or High. For example, a significant difference between the offeror’s proposed cost/price and the government’s probable cost/price and/or the government independent cost estimate may indicate the offeror did not clearly understand the requirement, with the possible result of causing significant disruption to schedule, increased cost, or degradation of performance. In such a case, a “Moderate” or “High” risk rating may be appropriate. 11/6/2018

Cost Evaluation Rules of Thumb Always evaluate in accordance with Section M Do not use one offeror’s data to adjust another offeror’s proposal Use ENs as the tool to understand discrepancies or obtain clarifications Don’t write in offeror’s proposal, as offerors may request their proposals be returned after source selection Remember you are evaluating a proposal; take into account the offeror’s unique approach, cost accounting system, etc. You are not developing an estimate independent of the offeror’s proposal Make sure the technical team’s input is adequately documented Adequate documentation of the technical team’s input is essential to justify positions taken by the cost/price analyst. You don’t want to rely on verbal communications, e-mails, etc. Lesson taken from a 2003 GAO protest decision. 11/6/2018

Documentation Why is proposal evaluation documentation so important? Supports business decision Improve chances of sustaining protest Keep everything until protest period is over! Shred extra copies of the proposals when you get the go-ahead Make sure the official file is complete with one copy of all documentation required. Shred all extra copies of proposals and extra copies of other data when you get the go-ahead. 11/6/2018

Documents Three main documents required at the end of the Source Selection: Simplified Source Selection Report (SSSR)/Proposal Analysis Report (PAR) Price Competition Memo (PCM) Source Selection Decision Document (SSDD) SSSR replaced the Proposal Evaluation Report (PER). Again, PCM is a requirement of AFMC. 11/6/2018

Proposal Analysis Report (PAR) Responsibility of the SSET chair Requirement to do PAR All Source Selections >$100M SSA determines if necessary for Source Selections between $10M-$100M If not required, must do Simplified Source Selection Report (SSSR) Documents results of the SSET evaluation, provides comparative analysis of the offeror’s proposals and SSAC/SSET source selection decision recommendation Includes: Performance confidence assessment, mission capability, cost/price risk (if used), cost/price, and contractual considerations Cost team responsible for cost/price section With a Simplified Source Selection Report, the documentation requirements are streamlined and refer to existing documentation (e.g. the PCM) as much as possible. The cost team is still responsible to ensure the cost/price section is adequately documented. AFFARS MP5315.308, paragraph 6.3.1 requires Proposal Analysis Report (PAR) for all acquisitions over $100M or as required by the SSA. The PAR shall be signed by the SSAC chairperson and the SSET chairperson. Based on an IG finding, recommend the CO sign to document that the price is fair and reasonable. Paragraph 8.6 defines the PAR as a report that fully documents the results of the evaluation of each proposal and the comparative analysis of all proposals within the competitive range. PAR includes the assessment of Cost or Price, past performance, mission capability, proposal risk, and includes the source selection recommendation (and if applicable, any minority opinion. AFFARS MP5315.3, IG paragraph 7.10 discusses the PAR including the organization and what should be included. See AFFARS Information Guidance IG5315.305, PAR Guide. Note to instructor: Discuss when to start preparation of PAR, how long the process may take, and additional information their SSA may require. 11/6/2018

Price Competition Memo (PCM) Responsibility of Contracting Officer Documents principal elements of negotiated agreement Included in official contract file Cost team provides inputs to CO Documents Program description, winning offeror, clearance, evaluators, acquisition background, period of performance, etc. Reasonableness, Realism, Most Probable Cost Calculation, Cost/Price Risk Factor Rating (if applicable), Determination of Adequate Price Competition, Balance of Contract Line Items, and Total Evaluated Price May be combined with the PAR The PCM is an AFMC term used for competitive price documentation. The term PCM is not defined in any of the FAR supplements. Its prescribed use is limited to AFMC organizations. There is no restriction on using the PAR to also satisfy the PCM or PNM for other commands requirements. PCM Guide: https://www.afmc-mil.wpafb.af.mil/HQ-AFMC/PK/pkp/pkpc/pnmpcm.htm The PAR and PCM may be combined in a single document. If you combine the two, the PAR must include sufficient detail so as to reflect essential summary information, market research results, the actual price or cost analysis, and negotiated positions that constitute price fair and reasonableness. The PAR/PCM should be a clear, complete and accurate documentation of the source selection and cover all parts of the AFMC/PCM Checklist, if applicable. The AF PAR Guide and the AFMC PCM Guide referenced on the prior slide and above both discuss the combination of the two documents. 11/6/2018

Source Selection Decision Document (SSDD) Provides SSA’s Integrated Assessment and Best Value Decision Must track to Requirements, Evaluation Factors, Decision Briefing and PAR Compares Proposals by Factors/Subfactors Must be a stand alone document Redacted copy will be provided to debriefed offerors AFFARS MP 5315.308, paragraph 7.12, Source Selection Decision. “A Source Selection Decision Document (SSDD) shall be prepared for all Air Force source selections; shall reflect the SSA’s integrated, comparative assessment and decision; and shall include the rationale for any business judgments—tradeoffs made or relied on by the SSA—including benefits associated with additional costs. The SSDD shall be the single summary document supporting selection of the best value proposal consistent with the stated evaluation criteria; it shall clearly explain the decision and document the reasoning used by the SSA to reach the decision.” Paragraph 7.12.1,” The SSDD is fully releasable to the Government Accountability Office and others authorized to receive proprietary and source selection information. When releasing a copy of the SSDD to offerors or to anyone not authorized to receive proprietary and source selection information, redacted material should be limited to that which is proprietary and that which shall continue to be protected as source selection information. The need to redact such information is not a sufficient reason to refrain from preparing a properly written SSDD.” AFFARS MP5315.3, IG paragraph 7.12 states that the SSDD must compare aspects of the most competitive offers against each other; e.g., “I have decided Contractor A’s approach to factor.XX was better than [Contractor B’s] [all other offerors’] because Contractor A proposed, discussed, resolved, identified, possesses or whatever.” Note to Instructor: Discuss time to prepare SSDD including review and signature. 11/6/2018

Lessons Learned Work resource issues early – necessary, available, qualified, trained people, seating, computers Develop a cost team schedule Include activities, dates, responsible parties Coordinate/integrate with overall schedule Provides SSET with understanding of necessary tasks; ensures tech personnel are informed of deadlines Evaluation Notices (ENs) Route ENs through appropriate channels for review to avoid duplication Have other team members (e.g., technical) review appropriate ENs prior to approval 11/6/2018

Lessons Learned (cont’d) Have analogous system and factor data ready and reviewed prior to the evaluation Use appropriate Briefing Templates Regular Team meetings (e.g., weekly) Review your briefing/documentation requirements early to facilitate final preparation Continuous coordination among cost team, technical team, & contracting personnel Pass on lessons learned! Pass on lessons learned! Good & bad Cost Team Lead at this time can address team on the specifics of this Source Selection. Such as Schedule, Assignments etc. 11/6/2018

Questions? Questions? Feedback? Please complete the feedback sheet before you leave. The training modules will be reviewed/updated periodically based on your inputs 11/6/2018