The document summarizes a presentation on cost and price analysis requirements, techniques, and industry trends. It defines cost analysis and price analysis, outlines when each is required, and describes various techniques used for each including analyzing labor hours and rates, materials, indirect rates, and profit. It also discusses common roadblocks in cost analysis and emerging trends in the industry. Contact information is provided for follow up questions.

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2. Welcome to NCMA’s
Cost and price analysis: requirements, techniques
and industry trends
January 11, 2018
12:00 p.m. to 1:30 p.m. (Eastern)

3. Disclaimer
This presentation is for informational purposes only and
does not constitute legal advice. For legal advice on any
issue, you should consult with an attorney.
The views expressed by the presenters are not
necessarily those of Ernst & Young LLP or other members
of the global EY organization.

4. Cost and price
analysis: requirements,
techniques and industry
trends
Andy Artz, Principal, Ernst & Young LLP
Karl Fultz, Manager, Ernst & Young LLP
January 11, 2018
12:00 p.m. to 1:30 p.m. (Eastern)

5. Agenda
• Defining cost and price analysis
• Certified cost or pricing data and regulatory
requirements
• Cost analysis
• Price analysis
• Common roadblocks and pitfalls
• Industry trends
5

6. Price analysis
• Price analysis is the process
of examining and evaluating a
proposed price without
evaluating its separate cost
elements and proposed profit.
• When required:
• When certified cost or pricing
data are not required
• Should be performed when
doing a cost analysis
Cost analysis
• Review and evaluation of
separate cost elements and
profit or fee in an offeror’s or
contractor’s proposal, as needed
to determine a fair and
reasonable price or to determine
cost realism, and the application
of judgment to determine how
well the proposed costs
represent what the cost of the
contract should be, assuming
reasonable economy and
efficiency
• When required:
• When certified cost or pricing
data is required
Defining cost and price analysis
6

7. Certified cost or pricing data
• “Certified Cost or Pricing Data” means any cost or
pricing data that are required to be certified pursuant
to the Truthful Cost or Pricing Data statute (formerly
Truth in Negotiations Act (TINA)).
• Certification states that to the best of certifier’s
knowledge and belief, the cost or pricing data are
accurate, complete and current as of the date of
certification.
7

8. Requirements for certified cost
or pricing data
• Applicable to a negotiated contract or subcontract
exceeding $750,000 (Oct 1, 2015)
• The 2018 National Defense Authorization Act increased the
threshold to $2 million.
• Applicable to negotiated modification of a contract
where aggregate pricing action is above the
threshold – even if the original contract was
competed
• When certified cost or pricing data are required,
offeror must submit:
• The certified cost or pricing data and any data other than
certified cost or pricing data required by CO to make fair
and reasonable and realism determinations
• A Certificate of Current Cost or Pricing Data
8

9. Exceptions to certified cost or
pricing data
• Adequate price competition
• Prices set by law or regulation
• Commercial item acquisition per definition at Federal
Acquisition Regulation (FAR) 2.101
• Written waiver has been granted by Head of Contracting
Activity
• Modifying a contract for a commercial item
• Proposals for overrun funding or interim billing price
adjustments
• The exercise of an option at the price established at
contract award or initial negotiation does not require
submission of certified cost or pricing data.
9

10. Data other than certified cost or
pricing data
• “Data other than certified cost or pricing data” means
pricing or cost data and judgmental information
necessary for the contracting officer to determine a
fair and reasonable price or to determine cost
realism.
• It can be data that is identical types of data as
certified cost or pricing data – but without the
certification.
• May include:
• Sales data
• Information required to explain estimating process
• Judgmental factors applied and mathematical or other
methods employed to make price estimates
• Nature and amount of any contingencies included in a
proposal
10

11. Cost analysis techniques
• Discussed in FAR 15.404.1(c), “Cost Analysis”
• When evaluating certified cost or pricing data:
• Reasonableness of proposed costs
• Projection of trends
• Reasonableness of parametric models
• Application of audited or negotiated rates
• Includes all cost elements
• Labor
• Material
• Overhead
• General and Administrative (G&A)
• Other (commissions, material burden, etc.)
• Evaluate profit
11

12. Cost analysis techniques –
Labor
• The labor element of cost will include labor hours
and labor rates.
• Estimates should be supported by a written basis of
estimate.
• A common mistake is to exclude either rates or hours
from the cost analysis.
12

13. Hours
• Technical analysis
• Historical experience of
supplier or contractor of
the same or similar
activities
• Learning curves and
other parametric
estimating
Rates
• Historical experience by
supplier or contractor
• May include averages or
discrete labor rates
• Industry standards
• Other published rate
information (e.g., Bureau
of Labor Statistics)
Cost analysis techniques –
Labor
13

14. Cost analysis techniques –
Material
• Materials are contained in the Bill of Material (BOM)
and should also be supported by a Consolidated Bill
of Material (CBOM).
• Common techniques:
• Comparison to quotes or purchase orders
• Analysis for non-recurring expenses (NRE) and scrap or
usage factors
• Should include both cost and quantity considerations
• Using historical cost and quantity curve analysis techniques
• Historical costs should be evaluated for changes in
escalation or commodity prices.
• The fair and reasonableness of quoted prices should be
considered.
14

15. Cost analysis techniques –
Indirect rates
• Rates might include labor overhead, manufacturing
overhead, material burden, G&A, fringe rate, etc.
• Techniques used may include a reasonable analysis,
but not full audit, of costs included in the overhead
pool to verify that only allowable costs are included.
• Comparison to Forward Pricing Rate Agreement (FPRA)
• Use of rate trends and final indirect rates agreed-to with the
government
• Detailed analysis of indirect pool accounts, data, and
calculations
• Industry trends and experience
15

16. Cost analysis techniques – Other
Direct Costs (ODC)
• Other Direct Costs include travel, tooling, etc.
• Each element of cost will need unique analysis.
• Actual analysis techniques used may be a function of
risk and materiality.
• Example: Travel
• Travel should have a BOE that states the
requirement/necessity for the travel, which may be
assessed by technical evaluator.
• Costs need to be supported by logistical information such as
number of days multiplied by government per diem rates for
lodging/meal in the location of travel.
16

17. Cost analysis techniques –
Profit
• Defense Federal Acquisition Regulation Supplement
(DFARS) 215.404-4 dictates that there are three
structured approaches to calculating profit –
• The weighted guideline method
• The modified weighted guideline
• An alternate structure approach
• A key consideration is that there is not a single
approach to profit evaluation. Any of the three may
be used and generally other methods may be used
by contractors, to extent the analysis is reasonable.
• Profit analysis typically incorporates risk, contract
type, facilities capital employed, and cost efficiency.
17

18. Price analysis
• Discussed in FAR 15.401-1(b) “Price Analysis”
• Price analysis is the process of examining and
evaluating a prospective price without evaluation of
the separate cost elements and profit.
• The analysis is used to determine price
reasonableness, but the process is subjective: for a
given set of information, different buyers might reach
different conclusions about price reasonableness.
18

19. Price analysis techniques
• Methods often involve comparison of:
• Proposed prices received in response to the solicitation
• Prior proposed prices and contract prices with current
proposed prices for the same or similar items
• Competitive published price lists, published market prices of
commodities, similar indexes, and discount or rebate
commitments
• Independent estimates
• Prices obtained through market research for the same or
similar items
• Analysis of pricing information provided by the offeror
19

20. Common roadblocks
and pitfalls
• Government assist audits denied or slow
• Lack of technical resources
• Inadequate or unavailable supplier data
• Monitoring of Long Term Agreements (LTAs)
• Not analyzing or addressing all cost elements
• Procurement file organization
• Documenting the procurement, decisions and
conclusions
• Ongoing monitoring and training not producing
improvements
20

21. Industry trends
• Increased focus on commerciality
• Use of specialists or third parties for cost analyses
• Organization of procurement departments
• Interactive training and workshops
• Procurement quality metrics
• Self assessments
• Use of templates and guides
21

22. Contact information
22
Andy Artz, Principal
Ernst & Young LLP
andrew.artz@ey.com
+1 703 747 1480
Karl Fultz, Manager
Ernst & Young LLP
karl.fultz@ey.com
+1 214 969 8121
SCORE No. 00124-181US

23. Questions
23
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