PREPARING COST PROPOSALS Tangela Williams, CPA Sr. Cost/Price Analyst Cost and Price Analysis Branch

Vital Elements of A Proposal; Vital Elements of A Proposal; Proposal Examples, including Proposal Examples, including Overhead Rate Calculations Overhead Rate Calculations General & Admin (G&A) Rate Calculation General & Admin (G&A) Rate Calculation Unallowable Costs; Unallowable Costs; Preparing For an Audit; Preparing For an Audit; Common Deficiencies Found in Proposals. Common Deficiencies Found in Proposals. TOPICS

VITAL ELEMENTS OF A PROPOSAL  Summary of Total Cost by Element Cross-referenced to each line item  Breakdown of Labor (FAR , Table II.B.) Hours Rates and Costs by Appropriate Category  Consolidated Priced Bill of Materials Types, Quantities, Cost FAR , Table 15-2 II.A.

VITAL ELEMENTS OF A PROPOSAL  BASIS OF ESTIMATE  How Indirect Rates are Computed  How Indirect Rates are Applied;  Cost Breakdowns, Trends and Budgetary Data (FAR , Table 15-2 II.C.);  Identification of All Other Costs by Category and Basis for Pricing (FAR , Table 15-2 II.D.);  Rationale for Proposed Profit (FAR ).

PROPOSAL EXAMPLES

SAMPLE PROPOSAL XYZ Technologies, Inc. Washington, DC Proposal Submitted in Response to RFP #IRS-Show-Me-The -Money ELEMENT OF COST AMOUNTREFERENCE Engineering Labor $400,000Schedule 1 Production Labor 30,000Schedule 1 Direct Labor 25,800Schedule Material 110,000Schedule 3 Material Handling 55,000Schedule Subtotal 620,800 49,664Schedule 5 Estimated Cost 670,464 67,046 Total Price $737,510

Engineering Labor Cost SCHEDULE 1 Labor CategoryRate HoursTotal Program Manager$ ,000$ 40,000 Sr. Engineer , ,000 Jr. Engineer , ,000 Total Eng Labor$400,000 ======= Production Labor Cost Labor CategoryRate HoursTotal Fabrication$ ,000$ 20,000 Assembly ,250 10,000 Total Production Labor $ 30,000 ====== SAMPLE PROPOSAL XYZ Technologies, Inc. Washington, DC Proposal Submitted in Response to RFP #IRS-Show-Me-The -Money

SAMPLE RFP COST PROPOSAL MAINTENANCE SUPPORT CONTRACT SEE HANDOUT

PROPOSAL - EXERCISE You are the owner of Small Company USA and you have just submitted a proposal to the federal Government. The Government has set aside the task of surveying a plot of land for the construction of a complex Government Building. The site is environmentally sensitive. Your company does not have the expertise to deal with the suspected pollutants believed to be under the site. Therefore, you have decided to subcontract certain aspects of the environmental site work to the only firm in the county that has the current technology to perform the necessary testing. This is your first proposal that you have prepared for the IRS. Even though the proposal is small, the C.O. has requested that DCAA perform a pre-award accounting survey and a review of your proposal.  What do you need to check out before the auditor arrives?  What can you anticipate that DCAA will be requesting?

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services ProposedReference Technical Labor$ 75,000Schedule 1 Labor Overhead 39,937Schedule 2 Subtotal$114,937 Subcontract Service 72,000Schedule 3 Travel 3,000Schedule 4 Total Cost Input$189,937 G&A 54,004Schedule 2 Total Cost$243,941 Profit 24,394 Total Price$ 268,335 =======

PROPOSAL EXERCISE Small Company, Inc. Direct Labor  Need Support for the $75,000 bid in this proposal.  Small Co. Inc. is bidding 2,500 hours at $30/hr.  Need to provide the basis for the 2,500 hours and the $30 per hours.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services Schedule 1 HoursRateAmount Technical Labor (Note 1)2,500$30.00$75,000 NOTE 1: Hours are based on Contract XYZ which was performed in FY 200X and was similar to this effort. The hourly rate is based on the current average rate paid to Technical support staff. Payroll records are available upon request.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services Schedule 2 FY 2009 Budget Direct Total Cost Overhead G&A Unallowable Admin Labor$20,000 5,00015,000 Depreciation 2,000 2,000 Fringe Benefits 5,000 4,000 1,000 Interest 8,000 8,000 Office Supplies 5,000 5,000 Tech Labor150,000150,000 Rent 10,000 10,000 Travel 5,000 3,000 2,000 Telephone 1,000 1,000 Payroll Taxes 6,000 6,000 Subcontracts 72,000 72,000 Miscellaneous 60,000 45,000 14,000 1,000 Total $344,000225,000 80,000 30,000 9,000

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services Overhead Rate Calculation: Schedule 2 Overhead Pool = $80,000 == 53.33% Direct Labor $150,000 G&A Rate Calculation: G&A Pool = $30,000 == 9.84% Total Cost Input $305,000

UNALLOWABLE COSTS  Determining Allowability (FAR );  Reasonableness;  Allocability;  CAS (not applicable to small businesses), GAAP and practices appropriate to the particular circumstances;  Terms of the Contract.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services Subcontracted Services:  What is the basis for the $72,000 estimate?  If it is “sole source” (which we put into the scenario), then Small Co. is responsible for analyzing for reasonableness.  If competitive, then supply the quotes from the various bidders and explain why this one was selected.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services Travel Cost  What is the basis and purpose of the $3,000 estimated travel?  Proposal indicates this will be a direct cost (How do you know it is direct and not indirect?)  Does the solicitation require a trip?  What is the basis of the pricing?

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services TRAVEL Schedule 4 Cost Element#of Trips #of daysCost TotalNOTES Airfare 3n/a$429$1,2871 Car Rental Lodging Incidentals Mileage 3n/a Per Diem $3,000 ===== NOTES: 1. Airfare estimated based on coach airfare from Denver to Baltimore April, Telephone quotes available upon request. Notes 2, 3, 4, 5 – Provide a basis consistent with your company’s policies and procedures (policy should be in accordance with Federal Travel Regulations).

PREPARING FOR AN AUDIT Personnel Familiar Readily Available An Adequate Accounting System Detailed Schedules Used Available Data Related to the Proposed Costs (Supporting Documentation) Readily Available Provide the Proposal and Supporting Data in Electronic Format Financial Statements of the Company

 Lack of Supporting Data;  No Basis of Estimate;  Does Not Comply With RFP Instructions;  Schedules Don’t Tie Into Summary Amounts;  No Grand Total Summary; and  Math Errors. COMMON DEFICIENCIES

 FAR PART 15 – Contracting By Negotiation  FAR PART 31 – Contract Cost Principles  OMB Circular A-122 – Cost Principles for Non-Profit Organizations  Contract Pricing Guides DCAA – FAI – REFERENCES

QUESTIONS AND ANSWERS