1. The Weighted Guideline Approach
Determining Contract Fee per DFAR Part through

2. DFAR Policy
Contracting officers shall use a structured approach for developing a prenegotiation profit or fee objective on any negotiated contract action when certified cost or pricing data is obtained, except for cost-plus- award-fee contracts or contracts with Federally Funded Research and Development Centers.
There are three structured approaches
The weighted guidelines method;
The modified weighted guidelines method; and
An alternate structured approach.

3. DFAR Policy When using a structured approach, the contracting officer—
Shall use the weighted guidelines method, except as provided in paragraphs below
Shall use the modified weighted guidelines method on contract actions with nonprofit organizations other than FFRDCs.
May use an alternate structured approach when
The contract action is—
At or below the certified cost or pricing data threshold (see FAR (a)(1));
For architect-engineer or construction work;
Primarily for delivery of material from subcontractors; or
A termination settlement; or
The weighted guidelines method does not produce a reasonable overall profit objective and the head of the contracting activity approves use of the alternate approach in writing.

4. DD Form 1547, Record of Weighted Guidelines Method Application
Provides a numerical approach to calculating fee based on:
Performance Risk
Contract Type Risk
Facilities Capital employed
Cost Efficiency
Analysis performed by CO who assigns values to various profit factors based on risk or other criteria
Normal Value
Designated Range of Values

5. Risk Types Performance Risk assesses the Contractor’s degree of risk
Technical Risk – the uncertainty of performing contract requirements or meeting technical objectives
Management/Cost Control Risk - The degree of management effort required to ensure technical requirements are met and costs are controlled.
Risk is weighted (percentage basis) between Technical and Mgt/Cost Control such that they total 100 percent.
Risk is assigned to Technical and Mgt/Cost per specific DFAR guidance
Composite “Performance Risk” is then calculated per the weighting factors.

6. Apportionment of Risk
The DFAR does NOT specify a particular range or rules concerning how to apportion between Technical and Mgt/Cost
Only guidance is to weight them based on their “contribution to the total performance risk”

7. Technical Risk Standard Range Technology Incentive Range
Nominal value is 5%
Designated range is 3% - 7%
Used for “.. Most contracts”
Technology Incentive Range
Nominal value is 9%
Designated range is 7% to 11%
Restricted use to Development and application of “innovative new technologies”
Not permitted if effort restricted to studies and analysis or demonstrations that have a technical report as primary deliverable

8. Evaluating Technical Risk in the “Normal Range”
Review SOW to determine
Technology being developed or applied
Technical Complexity
Program Maturity
Performance Specifications or Tolerances
Delivery Schedule

9. Assignment of Values
No justification required for assigning the “Normal” (median) value (5%)
Justification required for values above or below the median
Above normal (5.1 – 5.8)
Aggressive delivery schedule
Tight production tolerances or performance specifications
Extreme importance to Government
Highly skilled/experienced personnel and/or state-of-the-art machines/technology
Note: Sample values (e.g. 5.1 – 5.8) are for illustrative purposes only

10. Assignment of Values Significantly above normal (5.9 – 6.5)
Extremely complex, vital effort
Overcome difficult obstacles
Personnel with exceptional abilities / professional credentials
Maximum values (6.5 – 7)
Development of a new item especially if performance requirements/tolerances are extreme
High Degree of development or production concurrency

11. Assignment of Values Below Normal (4% - 5%) Significantly Below Normal
Requirements relatively simple
Technology not complex
Routine efforts
Follow-on effort
Program is mature
Significantly Below Normal
Routine services
Simple operations with Government property/equipment

12. Technology Incentive Range
Range from 7% to 11%
Introduction of new technology that fundamentally changes the characteristics of an existing product or system resulting in increased technical performance, reliability or reduced costs
New products or systems that contain significant technical advances over the product or system they replace
Relative value of innovation must be weighed against the acquisition as a whole.

13. Management/Cost Risk
Contractor’s management and internal control system
Based on Contracting Office information concerning and reviews made by field contract offices
Degree of Management involvement
Degree of cost mix
Resources applied
Value added by contractor
Extent of subcontracting
What critical tasks are performed by contractor
Support of Socio-economic programs
Expected reliability of cost estimates
Adequacy of Contractor’s management approach to control cost and schedule
Other factors
Currency exchange rates

14. Above Normal Rating Above Normal Maximum
Considerable and difficult to perform value added
High degree of integration
Good past performance on technical and socioeconomic programs
Appropriate make-buy decisions
Proven record of cost tracking and control
Maximum
Large-scale integration of most complex nature
Major international activities with significant management coordination
Critically important milestones

15. Below Normal Rating Below Normal
The program is mature and many end item deliveries have been made;
The contractor adds minimum value to an item;
The efforts are routine and require minimal supervision;
The contractor provides poor quality, untimely proposals;
The contractor fails to provide an adequate analysis of subcontractor costs;
The contractor does not cooperate in the evaluation and negotiation of the proposal.
The contractor's cost estimating system is marginal;
The contractor has made minimal effort to initiate cost reduction programs;
The contractor's cost proposal is inadequate;
The contractor has a record of cost overruns or another indication of unreliable cost estimates and lack of cost control; or
The contractor has a poor record of past performance.

16. Significantly Below Normal Rating
Reviews performed by the field contract administration offices disclose unsatisfactory management and internal control systems (e.g., quality assurance, property control, safety, security);
The effort requires an unusually low degree of management involvement.

17. Normal Value (Percent) Designated Range (Percent)
Contract Type Risk
Contract Type
Normal Value (Percent)
Designated Range (Percent)
Firm Fixed Price, No Financing
5.0
4 to 6
Firm Fixed Price with Performance Based Payments
4.0
2.5 to 5.5
Fixed Price with Progress Payments
3.0
2 to 4
Fixed Price Incentive, no financing
Fixed Price Incentive with performance based payments
2.0
0.5 to 3.5
Fixed price with redetermination
Special Instructions
Fixed price incentive with progress payments
1.0
0 to 2
Cost plus incentive fee
Cost plus fixed fee
0.5
0 to 1
Time and Materials
Labor Hour
Fixed Price Level of effort

18. Other Factors Facilities Capital employed Cost efficiency factor
Beyond scope of this presentation
See DFAR
Can add 10 to 25 percent
Cost efficiency factor
May add as much as 4 percent
Contractor must show
Actual cost reductions on previous contracts
Process improvements that reduce cost
Effective incorporation of commercial items and processes
Investment in new facilities if they contribute to better asset utilization or productivity

19. Crunching the Numbers Download template DD Form 1547
Fill in yellow blocks
Objective values for Materials, DL, ODC, G&A and Indirect cost come from cost proposal
Blocks 21 and 22 “Assigned Value” comes from risk analysis
Block 21 “Assigned Weighting” is somewhat subjective – more later
Block 24 is from contract type risk table
Blocks 25 to 28 will not be discussed
Block 29 “Cost Efficiency Factor” if applicable
Block 30 is the “recommended” fee.

20. Negotiating Tips
Establishing your case for a higher fee (or profit) begins with the proposal
Go to the qualifications for “above average” and include specific verbiage in your proposal showing how you meet these criteria
Make sure you identify the degree of difficulty for managing and coordinating project efforts
Include how you will control these activities to ensure on-time delivery etc.
Ring your bell
Tout your accomplishments with cost control
If you have a great record of small business or other socio-economic programs participation – include that in your proposal
If the technical or management volumes of the proposal are page limited put this information in the cost volume

21. Negotiating Tips
Help the negotiator come to the same factors as you assigned for the risk categories
Know the criteria
Discuss and document (hopefully in your proposal) how you meet the criteria for “above average” or higher.
Give them plenty of fodder for their negotiation memorandum
They will usually be fair but will need to adequately justify their decisions
Hard data is the best argument

22. Negotiating Tips
The split between technical risk and management risk must be set appropriately
What percent of the effort will be spent in each area
Remember “Management Risk” includes technical management so look at
Subcontractors
Virtual teams
Relative amount of attention required to keep program on track and coordinate efforts
A 50/50 split is probably not appropriate