6. When to Identify Risk
Responding to RFI
Responding to RFP
During Contract Performance
7. Who Identifies Risk
Project/Program Manager
Engineer
Production Manager
Controller
Contracts Manager
Empowered Official
Facility Security Officer
8. How Risk is Identified
Reading SOW/Spec
Reviewing T&C
Evaluating Production Schedule
Calculating Costs and Prices
9. Mitigating Risk
Add Buffer to Schedule
Ask for Technical Deviation
Employ Cost Control Measures
Buy Insurance
Hire Expertise
Team or Subcontract
Match Risk to Contract Type
11. Risk and Contract Type
Spectrum of Risk Sharing
Cost-type – More Risk on Buyer
When requirements not as clear
New technology challenges
T&M
Solution known, duration unknown
Fixed Price – More Risk on Seller
Requirements clear
Existing product or solution
13. Pricing Risk
Cost of overtime to meet schedule
Assume no technical deviation
Assume limited cost control
Cost of insurance
Cost of subcontracting
Cannot assume 100% worst case scenario
14. Escalation
Use a reasonable factor for out years
Factors for labor, benefits, & materials
Factors by industry and region
15. Escalation
IHS Global Insight
Used by Government and large primes
Includes forecasts
Lots of data slices
Fee to access
BIS
Historical data only
Limited data slices
Free
16. Escalation
Flat rate not acceptable
Staggered rate reflects reality
Can justify some increase farther out
17. Risk Factor
Can you apply a flat % as “Risk Factor?”
“Risk” is not a cost element!
18. Fee
Cost Plus Fixed Fee
Cost Plus Award Fee
Cost Plus Incentive Fee
Fixed Price
Fixed Price Incentive Fee
20. Award Fee
Overall cost, schedule, and technical
performance must be satisfactory
You can’t deliver early but fail on cost and
technical
21. Incentive
Calculation applied to the target goal, not the
minimum requirements
You don’t earn an incentive for delivering on-
time, you earn an incentive for delivering early
22. FAR Profit/Fee
(2) It is in the Government’s interest to offer
contractors opportunities for financial rewards
sufficient to stimulate efficient contract
performance, attract the best capabilities of
qualified large and small business concerns to
Government contracts, and maintain a viable
industrial base.
FAR 15.404-4(a)(2)
23. FAR Profit/Fee
(3) Both the Government and contractors should be concerned
with profit as a motivator of efficient and effective contract
performance. Negotiations aimed merely at reducing prices by
reducing profit, without proper recognition of the function of
profit, are not in the Government’s interest. Negotiation of
extremely low profits, use of historical averages, or automatic
application of predetermined percentages to total estimated
costs do not provide proper motivation for optimum contract
performance.
FAR 15.404-4(a)(2)
24. FAR Fee Limitations
(4)(i) The contracting officer shall not negotiate a
price or fee that exceeds the following statutory
limitations, imposed by 10 U.S.C. 2306(d) and 41
U.S.C. 3905:
(A) For experimental, developmental, or research
work performed under a cost-plus-fixed-fee
contract, the fee shall not exceed 15 percent of
the contract’s estimated cost, excluding fee.
25. FAR Fee Limitations
(B) For architect-engineer services for public works or
utilities, the contract price or the estimated cost and
fee for production and delivery of designs, plans,
drawings, and specifications shall not exceed 6
percent of the estimated cost of construction of the
public work or utility, excluding fees.
(C) For other cost-plus-fixed-fee contracts, the fee
shall not exceed 10 percent of the contract’s
estimated cost, excluding fee.
FAR 15.404-4(c)(4)(i)
26. Factors Affecting Profit
Unallowable costs
Unbillable costs
Cost overruns
Organizational costs such as taxes
C-corp vs S-corp or other pass-through entity
27. Uses of Profit
Reward owners and investors
Grow business through R&D and investment
Attract and retain talent through profit sharing
Attract investors and owners
28. Weighted Guidelines
Performance risk
Contract type risk
Facilities capital employed
Cost efficiency
Basis for negotiations
34. If you have charts use this page
Even a single
graphic, such
as a chart,
can be
presented
more
dramatically in
widescreen.
20.4
27.4
90
20.4
30.6
38.6
34.6
31.6
45.9 46.9 45 43.9
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
East West North
35. Pictures can also be presented more dramatically in widescreen.
Widescreen Pictures