Preparing Cost Proposals
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  • Contractors can negotiate profit with the contracting officer. Typically, contracting officers use criteria in FAR.404-4 for establishing a profit objective. A weighted guideline structured approach is used when cost analysis is required.
  • First, let’s take a look at the proposal.
  • Schedule 3 should include a reasonableness determination. For example, you could determine it’s reasonable based on rates charged to other vendors for similar effort. Obtain invoices from the subcontractor for the similar work for support.

Transcript

  • 1. PREPARING COST PROPOSALS Tangela Williams, CPA Sr. Cost/Price Analyst Cost and Price Analysis Branch
  • 2.
    • Vital Elements of A Proposal;
    • Proposal Examples, including
      • Overhead Rate Calculations
      • General & Admin (G&A) Rate Calculation
      • Unallowable Costs;
    • Preparing For an Audit;
    • Common Deficiencies Found in Proposals.
    TOPICS
  • 3. VITAL ELEMENTS OF A PROPOSAL
    • Summary of Total Cost by Element
      • Cross-referenced to each line item
    • Breakdown of Labor (FAR 15.408, Table 15-2 II.B.)
      • Hours
      • Rates and Costs by Appropriate Category
    • Consolidated Priced Bill of Materials
      • Types, Quantities, Cost
      • FAR 15.408, Table 15-2 II.A.
  • 4. 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 15.408, Table 15-2 II.C.);
    • Identification of All Other Costs by Category and Basis for Pricing (FAR 15.408, Table 15-2 II.D.);
    • Rationale for Proposed Profit (FAR 14.404-4).
  • 5. PROPOSAL EXAMPLES
  • 6. SAMPLE PROPOSAL XYZ Technologies, Inc. Washington, DC Proposal Submitted in Response to RFP #IRS-Show-Me-The -Money ELEMENT OF COST AMOUNT REFERENCE Engineering Labor $400,000 Schedule 1 Production Labor 30,000 Schedule 1 Direct Labor Overhead@60.0% 25,800 Schedule 2 Material 110,000 Schedule 3 Material Handling Overhead@5.0% 55,000 Schedule 4 Subtotal 620,800 G&A @8.0% 49,664 Schedule 5 Estimated Cost 670,464 Profit @10.0% 67,046 Total Price $737,510
  • 7.
            • Engineering Labor Cost SCHEDULE 1
    • Labor Category Rate Hours Total
    • Program Manager $40.00 1,000 $ 40,000
    • Sr. Engineer 28.00 9,000 252,000
    • Jr. Engineer 24.00 4,500 108,000
    • Total Eng Labor $400,000
    • =======
            • Production Labor Cost
    • Labor Category Rate Hours Total
    • Fabrication $10.00 2,000 $ 20,000
    • Assembly 8.00 1,250 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
  • 8. SAMPLE RFP COST PROPOSAL
    • MAINTENANCE
    • SUPPORT
    • CONTRACT
    • SEE HANDOUT
  • 9. 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?
  • 10. PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services
    • Proposed Reference
    • Technical Labor $ 75,000 Schedule 1
    • Labor Overhead 39,937 Schedule 2
    • Subtotal $114,937
    • Subcontract Service 72,000 Schedule 3
    • Travel 3,000 Schedule 4
    • Total Cost Input $189,937
    • G&A 54,004 Schedule 2
    • Total Cost $243,941
    • Profit 24,394
    • Total Price $ 268,335
    • =======
  • 11. 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.
  • 12. PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services
    • Schedule 1
    • Hours Rate Amount
    • 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.
  • 13. 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 5,000 15,000
    • 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 Labor 150,000 150,000
    • 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 $344,000 225,000 80,000 30,000 9,000
  • 14. 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
  • 15. UNALLOWABLE COSTS
    • Determining Allowability (FAR 31.201-2);
    • Reasonableness;
    • Allocability;
    • CAS (not applicable to small businesses), GAAP and practices appropriate to the particular circumstances;
    • Terms of the Contract.
  • 16. 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.
  • 17. 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?
  • 18. PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services
    • TRAVEL Schedule 4
    • Cost Element #of Trips #of days Cost Total NOTES
    • Airfare 3 n/a $429 $1,287 1
    • Car Rental 1 2 55 105 2
    • Lodging 3 3 120 360 3
    • Incidentals 3 3 40 120 4
    • Mileage 3 n/a 35 35 5
    • Per Diem 3 3 40 120 5
    • $3,000
    • =====
    • NOTES: 1. Airfare estimated based on coach airfare from Denver to Baltimore April, 2009. 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).
  • 19. 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
  • 20.
    • 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
  • 21.
    • 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 – www.dcaa.mil
      • FAI – http://www.acq.osd.mil/dpap/contractpricing/index.htm
    REFERENCES
  • 22. QUESTIONS AND ANSWERS