PREPARING PROPOSALS JUNE 10, 2004 PRESENTER JOE ESTERAK, CPA DCAA

2 DEFENSE CONTRACT AUDIT AGENCY TOPICS Vital Elements of A Proposal (Pamphlet ) Proposal Examples, including Overhead Rate Calculation General & Admin (G&A) Rate Calculation Unallowable Costs Preparing for An Audit

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

4 VITAL ELEMENTS OF A PROPOSAL Details: 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.C.) Rationale for Proposed Profit

5 Advanced Services Technologies Washington, DC Proposal Submitted in Response to RFP DAAH01-02-R-0001 Element of Cost Amount Reference Engineering Labor $452,151Schedule 1 Production Labor 26,412Schedule 1 Direct Labor 56.7% 271,345Schedule 2 Material 113,175Schedule 3 Material Handling 5.0% 5,659Schedule 4 Subtotal $868, % 69,499Schedule 5 Estimated Cost $938, % 93,824* Total Price$1,032,065 ======== *Contractors can negotiate profit with the contracting officer. Typically, contracting officers use criteria in FAR for establishing a profit objective. DoD contracting officers may use the weighted guidelines policy described in DFARS

6 Advanced Services Technologies Washington, DC Proposal Submitted in Response to RFP DAAH01-02-R-0001 Schedule 1 Engineering Labor Cost Labor Category Total Program Manager $23,174 $27,079 $18,967 $69,220 Senior Engineer 31,668 24,939 20,370 76,977 Junior Engineer 39,816 34,845 21,951 96,612 Engineering Aide 26,100 8, ,277 Production Writer ,876 15,876 Metallurgist 35,815 23,748 14,546 74,109 Draftsman 41,690 29,850 12,540 84,080 Total D/L – Eng$198,263 $148,838 $105,050$452,151 (Sched 1A) (Sched 1B) (Sched 1C) Production Labor Cost Labor Category Total Fabrication $4,340 $6,834 $7,176 $18,350 Assembly - 1,942 6,120 8,062 Total D/L – Prod $4,340 $8,776 $13,296 $26,412 (Sched 1A) (Sched 1B) (Sched 1C) Total Direct Labor $202,603 $157,614 $118,340 $478,563 ====== ====== ====== ======

7 Advanced Services Technologies Washington, DC Proposal Submitted in Response to RFP DAAH01-02-R-0001 Schedule 1A 2002 Engineering Labor Cost Labor Category Rate/HrHours Total. Program Manager $ $23,174 Senior Engineer ,200 31,668 Junior Engineer ,800 39,816 Engineering Aide ,800 26,100 Production Writer Metallurgist ,900 35,815 Draftsman ,200 41,690 Total D/L – Eng9,583$198, Production Labor Cost Labor Category Rate/HrHours Total. Fabrication $ $4,340 Assembly Total D/Labor – Prod 400 $4,340. Total Direct Labor$202,603 ===== All hours proposed are based on historical costs, reference contract DAAH01-99-C-0001, account The supporting data showing the historical hours and the development of the proposed hours are in file DAAH01-02-R-0001, Hours and is available immediately upon request. The direct labor rates are based on actual average rates as of 31 October The supporting data and rate calculation are located in file DAAH01-02-R-0001, Direct Labor Rates and is available immediately upon request.

8 Advanced Services Technologies Washington, DC Proposal Submitted in Response to RFP DAAH01-02-R-0001 Schedule 1B 2003 Engineering Labor Cost Labor Category Rate/HrHours Total. Program Manager $ $27,079 Senior Engineer ,939 Junior Engineer ,500 34,845 Engineering Aide ,377 Production Writer Metallurgist ,200 23,748 Draftsman ,500 29,850 Total D/L – Eng6,410$148, Production Labor Cost Labor Category Rate/HrHours Total. Fabrication $ $6,834 Assembly ,942 Total D/Labor – Prod 800 $8,776. Total Direct Labor$157,614 ===== All hours proposed are based on historical costs, reference contract DAAH01-99-C-0001, account The supporting data showing the historical hours and the development of the proposed hours are in file DAAH01-02-R-0001, Hours and is available immediately upon request. The direct labor rates are based on actual average rates as of 31 October 2001 and escalated 5 percent each year. The supporting data and rate calculation are located in file DAAH01-02-R-0001, Direct Labor Rates and is available immediately upon request.

9 Advanced Services Technologies Washington, DC Proposal Submitted in Response to RFP DAAH01-02-R-0001 Schedule 3 Shock Absorber Bill of Material (Note 3) Support Qty Unit Price Total Notes Sheet Metal 1,600 sq. yd $25.00 $40,000 (1) Casings 750 pcs ,375 (2) Plastic 7,500 pcs ,125 (1) Springs 1,700 pcs ,800 (2) Bolts 7,500 pcs ,875 (2) Total Material$113,175 ======= Explanatory Notes (1) These prices are supported by multiple vendor quotes. The proposed prices are those provided by the low bidder who was the ACME Corporation in their quotation dated October 21, The quotations are included in file "DAAH01-02-R-0001, Vendor Quotations" that are available immediately upon request. (2) These prices are supported by the Halloween edition of the Springs R Us Catalog. This catalog is available for audit in the pricing office. (3) The proposed quantities are from the engineering drawings for the shock absorber. This drawing is located in file "DAAH01-02-R-0001, Engineering Drawing" and is immediately available upon request.

10 UNALLOWABLE COSTS Determining Allowability (FAR ) Reasonableness Allocability Standards Promulgated by the CASB, if applicable; otherwise, GAAP and Practices Appropriate to the Particular Circumstances Terms of the Contract

11 Proposal-Exercise You are the owner of Small Company, Inc. and 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 of government buildings. 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 country that has the current technology to perform the necessary testing. This is your first proposal that you have prepared for the DoD. Even though the proposal is small, the CO 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?

12 Proposal-Exercise Small Company, Inc. Proposal for Technical Support Services Proposed Reference Technical Labor $ 75,000 Schedule 1 Labor Overhead 39,937 Note 1 Subtotal Labor & Overhead 114,937 Subcontract Service 72,000 Note 2 Travel 3,000 Schedule 2 Total Cost Input $189,937 G&A 54,004 Note 3 Total before Profit $243,941 Profit 24,394 Price $268,335

13 Small Company, Inc. FY 2004 Budget 677, ,000 Admin Labor $ 20,000 Advertising 2,000 Allowance for Bad Debt 5,000 Bid & Proposal 5,000 Bldg & Grounds Maintenance 3,500 Computer Lease 3,000 Depreciation 4,000 Fringe Benefits 96,000 Interest 7,500 Management Salary 50,000 Office & Supplies 36,000 Professional Fees 30,000 Subcontracted Services 180,000 Technical Staff Labor 200,000 Travel 10,000 Utilities 5,000 TOTAL $657,000

14 Small Company, Inc. FY 2004 Budget TotalDirect Cost OverheadDirect + OHG&AUnallowable Admin Labor 20,000 - Advertising 2,000 - Allowance for Bad Debt 5,000 - Bid & Proposal 5,000 - Bldg & Grounds Maintenance 3,500 Computer Lease 3,000 Depreciation 4,000 - Fringe Benefits 96,000 Interest 7,500 - Management Salary 50,000 - Office & Supplies 36,000 - Professional Fees 30,000 2,000 25,000 3,000 Subcontracted Services 180,000 Technical Staff Labor 200,000 Travel 10,000 7,000 2,000 9,000 1,000 Utilities 5,000 - TOTAL 657, , , , ,000 17,500

15 Small Company, Inc. FY 2004 Budget TotalDirect Cost OverheadDirect + OHG&AUnallowable Admin Labor 20,000 - Advertising 2,000 - Allowance for Bad Debt 5,000 - Bid & Proposal 5,000 - Bldg & Grounds Maintenance 3,500 Computer Lease 3,000 Depreciation 4,000 - Fringe Benefits 96,000 Interest 7,500 - Management Salary 50,000 - Office & Supplies 36,000 - Professional Fees 30,000 2,000 25,000 3,000 Subcontracted Services 180,000 Technical Staff Labor 200,000 Travel 10,000 7,000 2,000 9,000 1,000 Utilities 5,000 - TOTAL 657, , , , ,000 17,500

16 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 $30.00/hour. Need to supply the basis for the 2,500 hours and the $30.00 per hour.

17 Small Company, Inc. Proposal for Technical Support Services Schedule 1 Note 1: Hours are based on Contract XYZ which was performed in FY 2001 and was similar to this effort. The hourly rate is based on the current average rate paid to Technical support staff. Cost records are available upon request. Proposal for Technical Support Services TotalRateHours Technical Labor (Note 1) $ 75,000 $ ,500

18 Proposal-Exercise Small Company, Inc. Subcontracted Services What is the basis for the $72,000 estimated? 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.

19 Proposal-Exercise Small Company, Inc. Travel Cost What is the basis and purpose of the $3,000 estimated travel? –Proposal indicates that 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?

20 Small Company, Inc. Proposal for Technical Support Services

21 Proposal-Exercise Small Company, Inc. Proposal for Technical Support Services Proposed Reference Technical Labor $ 75,000 Schedule 1 Labor Overhead 39,937 Note 1 Subtotal Labor & Overhead 114,937 Subcontract Service 72,000 Note 2 Travel 3,000 Schedule 2 Total Cost Input $189,937 G&A 54,004 Note 3 Total before Profit $243,941 Profit 24,394 Price $268,335

22 PREPARING FOR AN AUDIT Personnel Familiar Readily Available An Adequate Accounting System Detailed Schedules Used Available

23 PREPARING FOR AN AUDIT Data Related to the Proposed Costs (Supporting Documentation) Readily Available Provide the Proposal and Supporting Data in Electronic Format Financial Statements of the Company

24 DEFENSE CONTRACT AUDIT AGENCY SUMMARY Vital Elements of A Proposal Proposal Examples Preparation for An Audit

25 QUESTIONS????

26 JOE ESTERAK, CPA Presenters Information