1. NCMA Training: Price Analysis for Non-Price Analysts
Erin E. Mansur
March 2011

2. Agenda Why We Analyze Proposals Cost or Pricing Data
Proposal Analysis Techniques
Proposal Analysis Steps
Final Thoughts
It should be noted that this briefing will focus on FAR 15 acquisitions.

3. Why We Analyze Proposals
Per FAR : Contracting Officers Shall -- (A) Purchase Supplies and Services From Responsible Sources at Fair and Reasonable Prices.
This Is the Basis for All Other Pricing Related Regulations and Policies.

4. Why We Analyze Proposals Cont.
Objective of Proposal Analysis is to ensure that the final agreed-to price is fair and reasonable
Contracting Officer is responsible for evaluating the reasonableness of offered prices:
Contracting Officer may request the assistance of other experts to assist with the evaluation

5. General Considerations
Various techniques may be used singularly or in combination to analyze cost or pricing data
Complexity and circumstances of each acquisition determine the level of detail of the analysis required

6. Cost or Pricing Data
All facts that, as of the date of price agreement, or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price, prudent buyers and sellers would reasonably expect to affect price negotiations significantly.
Factual
Verifiable

7. Cost or Pricing Data Cont
Truth in Negotiation Act (TINA) says
MUST obtain cost or pricing data (certified) over $700,000 UNLESS
Price Based on Adequate Price Competition
Price analysis, usually comparison of offers
Law or Regulation (mainly utilities)
Commercial Item
Price analysis
Modification of a commercial item
Waived by Head Of Contracting Activity
Use cost analysis for procurements over $700,000 where an exception/waiver does not apply

8. Proposal Analysis Techniques
Cost Analysis
Price Analysis
Cost Realism Analysis
Technical Analysis
Unit Prices
Unbalanced Pricing

9. Proposal Analysis Steps
1. Examine Proposal for Compliance with FAR Table 15-2 and the RFP
2. Review Contractor’s “Groundrules and Assumptions” and/or “Terms and Conditions”
3. Request Field Pricing Support
(DCAA Audit / DCMA Pricing & Tech Supt)
4. Request Technical Evaluation from Program Office
5. Build Pricing Model
6. Begin Preparing a Preliminary Price Negotiation Memorandum (PPNM)
7. Start Performing Price/Cost Analysis
IAW Policy Memo 10-C-14 signed by SAF/AQC, Roger Scott Correll, on 13 October 2010.
The Air Force has a Proposal Adequacy Checklist that should be included with all RFPs for actions exceeding $700K

10. Proposal Analysis Steps Cont.
8. Review Technical Evaluation for adequacy
9. Review results from DCAA/DCMA
10. Incorporate Tech & DCAA/DCMA Results into Pricing Model
11. Perform Weighted Guidelines Analysis (unless CPAF)
12. Final Price Analysis
13. Prepare Business Clearance Pricing Charts
14. Complete PPNM
15. Prepare Govt Offer Position for Negotiations

11. Step 1 Examine Proposal Data
Does proposal contain Cost or Pricing Data in a format consistent with FAR Table 15-2 (FAR )?
Does proposal comply with specific RFP instructions?
If answer to either question is No, call contractor ASAP.

12. FAR Table 15-2 (Found under FAR 15.408(m))
FAR Table 15-2 requires:
A Proposal Index of all Cost or Pricing Data
Cost Element Breakdowns for each CLIN consistent with contractor’s Cost Accounting System
Total Summaries by Cost Element
Identification of Incurred Costs (Actuals)
Submission of FPRA if negotiated
Proposed use of Govt Furnished Property
If subject to Cost Accounting Standards (CAS), a statement on adequacy of Disclosure Statement
Identification of any CAS non-compliances

13. FAR Table Cont.
Even though Cost or Pricing Data is factual not judgmental, per Table 15-2 I C, contractor must submit any information reasonably required to explain estimating process, including --
The judgmental factors applied and the mathematical or other methods used in the estimate
The nature and amount of any contingencies included in the proposed price.

14. FAR Table 15-2 Cost Elements
Material - Contractor must provide:
Consolidated priced summary of individual material quantities (Bill of Material) identifying the item, source, quantity, and price.
Cost/Price analysis of Subcontracts over $700K if no exception applies.
Subcontractor cost or pricing data must be provided to the Gov’t if:
>$12.5M; or
10%+ of prime contractor’s price

15. FAR Table 15-2 Cost Elements, Cont.
Labor - Contractor must provide:
a time-phased (e.g., monthly, quarterly, etc.) breakdown of labor hours, rates, and cost by appropriate category, and furnish bases for estimates
Note: This where the contractor tells us “how and why” they bid the hours they did. It almost always includes judgmental factors

16. FAR Table 15-2 Cost Elements, Cont.
Indirect Costs - Contractor must provide:
How they computed and applied indirect costs, including cost breakdowns. Show trends and budgetary data to provide a basis for evaluating the reasonableness of proposed rates. Indicate the rates used and provide an appropriate explanation.
Note: In proposals with major contractors, indirect cost data is often limited to a description and listing of the rates. The details behind the rates are contained in the contractor’s forward pricing rate proposal submitted to DCAA & DCMA. We rely on DCAA & DCMA to analyze that data.

17. Step 2 Review Groundrules & Assumptions/Ts & Cs
Ensure that proposal are not based on assumptions that are not true or terms that are not acceptable
e.g.
Availability of Govt Furnished Property (GFP)
Access to Govt Facilities
Special Provisions that are unfavorable to Govt or unfairly limit Govt Rights (e.g. Data Rights)
Identify issues early, contact contractor ASAP.
Issues that affect the contract price have to be addressed soon – may require revised proposal

18. Step 3 Request Field Pricing Support
DFARs PGI (a), Field Pricing Assistance, contains the following guidance:
(i)  The contracting officer should consider requesting field pricing assistance for—
(A)  Fixed-price proposals exceeding $700K;
(B) Cost-type proposals exceeding $700k from offerors
with significant estimating system deficiencies.
(C)  Cost-type proposals exceeding $10 million from
offerors without significant estimating system
deficiencies.

19. Step 3 Request Field Pricing Support Cont.
DFARs PGI (c), Audit Assistance for prime contracts or subcontracts contains the following guidance:
(i)  The contracting officer should consider requesting audit assistance from DCAA for—
(A)  Fixed-price proposals exceeding $10M;
(B) Cost-type proposals exceeding $100M
This is a recent change that occurred in Sep 2010

20. Step 4 Request Technical Evaluation
Buyer/PCO will request tech eval
Tell them what needs to be evaluated
Material (Types & Quantities)
Labor Hours
ODCs
Person doing pricing should communicate to Tech Eval team on how they need the Tech Eval summarized.
e.g. Hours by Labor Category, by CLIN, by Year

21. Step 5 Build a Pricing Model
Build a spreadsheet model to price the action
Includes all cost elements & Profit
Original Model will validate accuracy of contractor’s proposed price
If model doesn’t produce same result as proposal (except minor rounding errors), either your model is wrong or proposal is wrong (Hint: it is usually your model that is wrong)
If Contractor’s proposal is wrong, contact contractor

22. Sample Pricing Model

23. Step 6 Begin Preparing Preliminary PNM
A Preliminary PNM is not duplication of effort.
It is essentially 2/3 of the final PNM
It can help avoid mistakes that may not be easily corrected after negotiations
Knowing what you need to address in the PPNM and the PNM will force you to address those things during proposal analysis & negotiation
At this point you can already prepare 1/3 of the PNM – Introductory info, Proposed amounts and Basis of Proposal sections of the Cost Element Summary portion of the PNM
Note for contractors: the Pre-PNM is the document that the Gov’t prepares to show our objective negotiation position. The Final PNM shows the negotiated position.

24. Step 7 Price/Cost Analysis
If we or someone else bought the same or similar item before:
What was the price?
How long ago? what quantity? delivery schedule?
Same Ts & Cs, financing methods?
Did we ask for actual cost data from prior buy? (if not, do it now!)
This is “cost analysis” not price analysis, but make sure Technical Team is given access to this data for the Technical Evaluation

25. Price vs. Cost Analysis Price Analysis is… Cost Analysis is…
Look at total price
Reasonableness is based on a comparison of proposed prices to same or similar items
Profit is imbedded in price
Cost Analysis is…
Look at detailed cost element breakout
Reasonableness is based on a thorough analysis of each cost element
Profit is evaluated

26. Cost Analysis
Per Far (a)(3) Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required. Price analysis should be used to verify that the overall price offered is fair and reasonable

27. Other cost elements can be added when applicable
Cost Analysis
Analysis of each major cost element
Labor Hours
Labor Dollars
Indirect Costs (Fringes, Labor Overhead)
Materials
Subcontracts
Intra-Company Transfers
Other Direct Costs
Cost of Money
General and Administrative
Profit/Fee
Other cost elements can be added when applicable

28. Price Analysis
FAR (b)(2) includes the following examples of methods of price analysis:
Compare Proposed Prices
Previous Prices
Parametric
Catalog or published prices
Government estimates
Market prices
Pricing information provided by offeror
First two are in BOLD because they are preferred.

29. Price Analysis
The first two techniques are the preferred techniques ( (b)(3))
If CO determines that information on competitive proposed prices or previous contract prices is insufficient to determine that the price is fair and reasonable, then the CO may use any of the remaining techniques
But don’t ignore any pertinent information!
Government estimate
Market research
Historical prices
Explain what you concluded on any price information
Check all available information/avenues
Document in appropriate detail.
Remember that someone else will need to know WHO, WHAT, WHERE , WHEN and HOW. Especially: How you arrived at your conclusion.
If you really don’t know why a number is different, say so but don’t just ignore it. For examples if an old historical price is less than current prices and you can’t find any information on how it was developed say that.

30. Price Analysis
FAR (b)(2) includes the following examples of methods of price analysis:
Compare Proposed Prices

31. Comparison of Proposed Prices
Comparison of proposed prices received in response to a solicitation (competitive)
Considered reasonable unless PCO has information to believe it is not
Especially if competition meets standard for Adequate Price Competition (APC) in FAR
1st technique is Comparison of Proposed Prices
Be careful of cost type contracts; usually requires cost realism analysis which should lead to cost reasonableness
Noted that the proposed prices may not meet the standard for adequate price competition but can still be compared. If the prices do meet the standard for adequate price competition, can generally assume they are reasonable.

32. Adequate Price Competition
APC FAR reference (c)(1)
Comparison to other proposed prices received is normally used as part of APC determination
What conditions need to exist for APC?
Expected at least 2 offers
Compete independently
Can satisfy government requirements
Best value award
Price offered is not unreasonable
Price is a substantial factor in source selection

33. Price Analysis Compared Proposed Prices Previous Prices
FAR (b)(2) includes the following examples of methods of price analysis:
Compared Proposed Prices
Previous Prices

34. Compare to Previous Prices
Price Analysis includes:
Validating basis of prior determination of fair and reasonable
Competitive, sole source, commercial?
Prior award date
Quantity
Price
Contract Type
Price Analysis includes:
Validate basis of prior determination of fair and reasonable
Competition
prior award date
quantity
Price
Document and address adjustments to the current buy

35. Compare to Previous Prices
Be Aware of:
New item vs. overhaul with same National Stock Number
Urgent vs. normal delivery schedule
Technology change
Configuration change
Terms and conditions
Manufacturing process changes
Market conditions
Etc.
NSNs don’t distinguish between a new item and an overhaul or surplus
Jo41 shows surplus but not necessarily overhaul/new item. Some examples of titles for various Price Evaluation Codes are:
adequate price competition
price comparisons based upon previous adequate price
price comparison based upon contract price history
other price comparison technique
cost analysis using certified cost or pricing data
price based upon formula pricing agreement
price comparison on an independent government estimate
surplus
value analysis
award based on other than price

36. Compare to Previous Prices
Document details of analysis
For example:
Escalation used
Time, rate, etc.
Basis and currency of previous price
Competition, cost analysis, etc.
Similarity of items
Any difference affecting price
Explain differences or adjustments
Quantify price differences

37. Step 8 Review Tech Eval for Adequacy
Does Technical Evaluation:
Address types and quantity of labor?
Provide sufficient rationale for all labor hour positions (Objective & Going-In)?
If proposed numbers were accepted – why?
If reductions are recommended – why?
Are recommendations summarized correctly to allow Govt Pricing Positions to be developed?
Have all hours been evaluated?
Doubts about tech eval? - play “devil’s advocate” with technical team on key issues

38. Step 9 Review DCMA/DCAA Reports
Were all costs reviewed?
What did we request?
Are the results of the audit “qualified” for any reason?
Are there “unresolved” or “unsupported” costs? If so why?
You may need to contact contractor to insist they provide support to DCMA/DCAA
Be aware of the “Report Release Restrictions”
Do You understand Results?
A Qualified is expressed when:
1) there is a lack of sufficient competent evidential matter or there are restrictions in the scope of the examination that have led the auditor to conclude that he or she cannot express an unqualified opinion and the auditor has concluded not to disclaim an opinion, and/or
2) the auditor believes, on the basis of the audit, that the subject matter under audit contains a departure from the established criteria, the effect of which is material, and the auditor has concluded not to express an adverse opinion.
Unsupported: When the contractor does not furnish sufficient documentation to enable a definitive conclusion, may significantly impact the contracting officer’s development of a negotiation position. A subcontractor/IWA is considered unsupported regardless of whether or not an assist audit has been requested if the contractor has not completed its price/cost analysis.
Unresolved: Failure to receive requested DCAA assist audit reports. Also, when there are significant incomplete subcontract/IWA pricing actions applicable to repricing proposals for incentive and fixed price redeterminable contracts.
Report Release Restrictions : For example, an assist audit cannot be released to a prime contractor unless the subcontractor gives permission.
Utilize ESC Liaisons
DCAA: Zelma Calderon
DCMA: Izzie Mooney

39. Step 10 Incorporate Tech Eval, DCMA/DCAA Results into Pricing Model
Double check your entries
Make sure you are not duplicating exceptions taken by Tech Eval & Audit
e.g.
Tech Eval deletes Part # NGX105 valued at $100,500
DCAA questions costs of $27,000 for Part # NGX105
If Tech Eval position is adopted you delete $100,500 from Material (Don’t delete another $27,000)
Does the total cost look right?
e.g. how did a 12% reduction in hours result in a 20% reduction in total cost? (probably not right)

40. Step 11 Perform Weighted Guidelines Analysis
DFARS mandates the use of the Weighted Guidelines tool to develop a profit or fee objective
Except for:
Cost Plus Award Fee Contracts
Contracts with Federally Funded Research and Development Centers (FFRDCs)

41. Step 11 Perform Weighted Guidelines Analysis
Key Elements
Contractor Risk Factors
Contract Type Risk
Working Capital
Contractor Facilities Capital Employed
Cost Efficiency Factor

42. Weighted Guidelines

43. Step 12 Complete Price Analysis
This is the final cross check of the cost analysis.
Does our Objective Price make sense when compared to the same or similar efforts all thing considered…
Quantities
Schedule
Escalation
Ts & Cs

44. Step 13 Prepare Business Clearance Charts
Using Data from your Pricing Model, prepare Business Clearance charts.
Template for charts can be found on the
PK Homepage
– Local Process Guidance
- Documents Library
- Clearance

45. Step 14 Complete Preliminary PNM
Everything but “Results of Negotiations” should be complete.

46. Must be a complete summary of the negotiation process
What is a PNM?
*** Price Negotiation Memorandum ***
“ A PNM is a document that summarizes the process of negotiating a contract’s price; the outcome of that process; and, serves as a record of the decisions made in determining a price to be fair and reasonable.” Nash and Cibinic
Must be a complete summary of the negotiation process

47. Need for Documentation
Why Document your pricing?
FAR
…the contracting officer must establish price reasonableness in accordance with , , or Subpart 15.4, as applicable…
FAR (a)(2)
If only one response is received, include a statement of price reasonableness in the contract file
FAR
CO…shall document in the contract file the principle elements of the negotiated agreement
What is the Documentation used for?
Providing information for future buyers/CO’s
Defending the Air Force in claims or protests
Supporting Defective Pricing efforts
Providing information for DoD IG, GAO, etc.

48. Step 15 Prepare Govt Offer Position
Prepare Government Offer Position
Both cost and profit/fee
You need to be able to tell the contractor why your offer is less than the proposal (details)
Understand the key technical & audit issues and be able to talk to them in “layman’s” terms
We say prepare Gov’t offer, but for contractor’s this can be your offer to your subs.

49. Final Thoughts Proposal Analysis is a Team Effort
Everybody’s part is important
Use Available Resources
When we have done a good cost analysis - Negotiations can be fun, challenging and very rewarding.

50. Questions?