Value-Added Pricing Support

JUNE 19 – 21, Bethesda, MD
© 2018 General Dynamics. All Rights Reserved

Introduction

Bottom Line Up Front
 Are these the tools of the pricing/estimating
trade?

Bottom Line Up Front (2)
 Is this the title given to your pricing/estimating
dept. by your enterprise?
Compliance Cops
PROPRICER™ Mechanics

Purpose
 How does the Pricing department best support
the enterprise, best support a given capture
effort and what is considered value-added
support from this function?
 Best Practices
 Lessons Learned

Agenda
 Core Values
 Strategy & Pre-Proposal Phases
 Proposal Phase
 Post-Submittal Phase

Core Values

Pricing’s Own Definition of Success
 “I think value-added support is being able to provide expertise
to the Capture Team by applying best practices and strategies
to support their specific customer.” – Seth Grimmell, Pricing
Manager General Dynamics Information Technology
 “Going above and beyond the responsibilities of your
position/role as a pricing lead.” – Jim Michael, Pricing Director
General Dynamics Mission Systems
 “Anyone can merely run numbers and put a pricing package
together, the value- add is the strategic analysis of the pricing
to include submission of a compliant proposal.” – Maureen
Jamieson, former Pricing Director of BAE Systems TSS

Already Heroes
 It is a known fact that Pricing departments put in a lot of
work and are extremely dedicated
 Last one to the party
 In this stressful and challenging environment, tempers
can flare
Beware of going from Hero to Zero

Core Responsibilities
 Pre-Proposal Phase: Supports cost strategy efforts and cost
reviews as required, provides mock-ups of DRFP cost
reporting tables
 Proposal Phase: Performs all cost proposal pricing using
current rates and factors, ensuring compliance w/ disclosed
practices, prepares all cost reports for the Cost Volume.
Often acts as the Cost Volume lead, especially for sole
source efforts
 Post-Submittal Phase: Conducts sweep to ensure that all
proposed costs are still current, complete and accurate.
Performs Audit and Fact-Finding support as necessary
Prime Directives – Ensure Compliance and Profitability

Estimating System Compliance
 Large Government contractors with contracts totaling >$50M where
certified cost and pricing data were required within a fiscal year, must
have an established cost estimating system –
 The system is tested and audited by DCAA or DCMA for compliance
and consistent application
 Failure to comply with a cost estimating system can result in severe
financial penalties including billing withholds for the company and/or
inability to bid on Government contracts
 Relevant employees preparing, reviewing or approving cost estimates
must undergo sufficient training to ensure understanding and
consistent application of the cost estimating system
Pricing should educate the enterprise, creating understanding about why
compliance is so important and why pricing has laser focus on this

Financial Analysis
 Pricing should provide strategic analysis necessary to secure
profitable business
 Fixed rate analysis
 Identification of cost risks
 Assist w/ BOE development and/or review
 Pricing should provide responsive and informative cost breakdowns
and numeric analysis that permit capture folks to isolate cost drivers
and quickly determine courses of action
Financial analysis is NOT simply providing a “Detailed Cost Breakdown” report from PROPRICER™

Pricing Leadership
 Value-Added support comes from the top
 The dept. leader should set the expectations
through:
 Communication
 Guidance
 Invaluable to have an Subject Matter Expert
(SME) who is emulated
 Expectations established for the dept. about the
kinds of support/skills/knowledge required that
provide value to the business

Strategy and Pre-Proposal Phases
Opportunities
To
Excel!

Cost Strategy
 Pricing should understand it and can help here
 This is especially true if your firm does not have resources that
focus on this
 The business should engage pricing to help/participate
 The Customer is King – do not lose sight of this given
the commitment to your specific role
CUSTOMER

Price to Win (PTW)
 Independent view (often external) of a competitor’s potential bid
price and behaviors
 Affordable but credible price given the requirements
 Open source data collection (web, publications, FOIA, resumes,
news, etc.)
 Some firms don’t have money to pay for external PTW consultation
 Pricing can be part of the team that fills this gap
Pricing should not be myopic – PTW is an important ingredient to winning and
the capture team should get on-board BUT should proceed with caution

Cost Modeling
 Initial and swift cost estimating activities,
recommended for any
competitive/strategic capture
 Used to gain early insight into cost
strategies and elements of cost
 Expedient way to achieve PTW
 Performs trades/run scenarios
 Achieves desired price considering risk
trade-offs, profitability and execution realities
Pricing should be engaged but also understand the value of such activities

(Draft) RFP Analysis
 Important to tell capture teams what Section B,
L and M mean in terms of pricing, cost volume
(CV) and compliance requirements
 What is the CV response? What is the importance
of cost to the evaluation?
 Value comes from knowing it cold
 Leadership doesn’t have a lot of time
 Read and Reread – Q&A window closes quickly
Pricing be an expert that is relied upon by the capture team for RFP analysis
to find a path forward, otherwise questions should be asked

Cost Kickoff Meeting
 Communicating with the team what has been done to
date and what still needs to be done
 Strategy and Non-Cost Solutions
 RFP Analysis
 Proposal Schedule
 Estimating
 Proposal/Capture team should seek and encourage
Pricing participation to ensure that expectations
concerning pricing are communicated here
 Even brief KO’s for smaller bids/sole source bids are
highly beneficial
Pricing contributes to aspects of this meeting and is attentive to other
aspects by being invited and attending this meeting

Proposal Phase
Opportunities
To
Excel!

Cost Volumes
 An articulation of the fairness and reasonableness of
proposed costs
 Few understand the cost proposal elements better than
the Pricing Analyst and the challenge of concurrent
estimate and volume development
 Ideal candidate to assemble the volume but separate Cost
Vol. Lead & Pricing Lead roles are preferred for larger
efforts
 Requires knowledge about the various roles involved in
CV development, to include the technical strategies and
solution
Pricing should be an integral part of all aspects of the Cost Proposal
development process

Cost Proposal Reporting
 Responsive to Customer
evaluation
 Can be a lengthy and difficult
process to comply with Customer
required/provided templates (e.g.
working formulas)
 PROPRICER™ Custom reports may
be required
 Break it early, fix it early
Customer
Enable Customer evaluation by providing intuitive cost reports with
accompanying narratives in the Cost Volume

Prime Contractor Evaluation
 When your firm is a subcontractor to a
competitor Prime, frequently, that Prime
will ask for Proprietary Information
 Evaluate each request on a case-by-case
basis
 In many cases the Prime will ask for
information which is always deem
competition sensitive and therefore not
provided. However, we always want to
ensure the Prime is provided adequate
supporting documentation to enable their
review of our proposal to allow them to
make a favorable price reasonableness
determination
Pricing should contribute to the plan that enables the Prime’s review and evaluation

Basis of Estimates
 Pricing should ensure the completeness, accuracy
and validity for the BOE and supporting cost or pricing
data
 BOE Required by law for proposals requiring certified cost
or pricing data
 A sound BOE protects against negotiation challenges and
helps us win more business
 Mitigates risk and ensures completeness by seeing to it
that all costs are properly accounted for (i.e., all necessary
costs included, all unnecessary costs eliminated)
Pricing inspection of BOE quality prevents poor BOEs from leaving the building

Post-Submittal Phase
Opportunities
To
Excel!

Govt./Customer Evaluation
 The key to a winning proposal is often the degree
of harmony between the Technical and Cost
Volumes1
 Excessively low (or high) costs occur when the
offeror2
 Does not understand performance requirements
 Did not properly coordinate proposal preparation
 Consciously understated/overstated the proposed cost/price
1Shipley Proposal Guide, Third Edition
2Contract Pricing Reference Guide Volume 4, Chapter 8
Pricing can help the business enable proposal consistency and guard against
challenges to cost realism and reasonableness

Cost Realism and Cost Reasonableness
 Realism
 Cost-type contracts only
 Relies on the Internal Govt. Cost
Estimate (IGCE) to help make
the determination
 Establishes the probable cost of
performance by determining if
the proposed costs are sufficient
for successful program execution
 Ensures the cost estimate is
not too low
 Reasonableness
 All negotiated contract types
 Relies on Cost or Price Analysis
techniques (see FAR 15.404-1
b&c) to help make the
determination
 Establishes the fairness of
proposed prices by determining if
proposed costs are necessary for
contract performance
 Ensures that price is not too
high
Pricing can help the business understand what these really are and how to
articulate them in the Cost Proposal

Negotiating
 Pricing should have a seat at the table
 Ensure that Contracts dept. is part of the
solution during the proposal phase

The Road Ahead
 Pricing leads have taken other paths by exceeding
expectations and providing greater value
 Contracts
 Program Finance
 Cost and Schedule Control
 Business Development
 Program Management
 Pricing Management
l

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