Contracts subject to the submission of cost or pricing data, (flexibly-priced contracts), require an acceptable basis of estimate including hours and dollars by line item, time-phased to match the project schedule, and sufficient detail to support the effort proposed. This course will dive into the complexity of those details and show you how to maximize profit and ensure regulatory compliance by preparing an adequate basis of estimate for every contract, regardless of type, when developing your cost and price proposal.
3. Who we are
Left Brain Professionals is a boutique accounting firm that serves
government contractors. We specialize in accounting system design
& implementation, audit support, training, and cybersecurity
compliance.
5. Our Team
Robert E. Jones
Government Contracts &
Accounting Expert
CPA, CPCM, NCMA Fellow
Melissa Metzger
Government Accounting &
Finance Advisor
MAFM, CPA Candidate
Steven Bressler
Government Contract
Associate
steve@LeftBrainPro.commelissa@LeftBrainPro.comrobert@LeftBrainPro.com
6. Learning
Objectives
• Describe elements of an
adequate basis of estimate
• List three regulatory limitations
on profit or fee
• Explain the purpose and
calculation of weighted
guidelines
• Identify sources for escalation
7. Room Poll
How many cost and price proposals do you
prepare per year?
A. 0
B. 1-5
C. 6-10
D. 10+
11. Basis of Estimate
A basis of estimate (BOE) is an
organized set of data and narrative
information that explains the logic,
methodology, calculations, and
assumptions used to define the tasks
and determine the resources needed
to accomplish the scope of work
described in the RFP.
Cont…
12. Basis of Estimate, Continued…
Developing a credible BOE requires reliable historical and
actual cost source data that you can trace back to the
applicable business system, such as accounting, purchasing,
material management, manufacturing, or time keeping.
13. Methods
• Analagous Method - you performed similar work that can
serve as a basis.
• Cost Estimating Relationship (CER) Method - established
library of statistically valid cost estimating relationships based
on historical data.
• Task-Based/Bottom-Up - you performed similar work and
can access a library of historical data.
Cont…
14. Methods, Continued…
• Level of Effort (LOE) Method – predefined level of
support for some tasks such as allocation of hours for
project management, quality assurance or supervisors.
• Engineering Judgment Method – (least desirable) relying
on technical expertise without any historical data.
15. Room Poll
A basis of estimate is:
A. List of items or tasks with calculations and dollars.
B. List of items or tasks with descriptions.
C. List of items or tasks with quantity/hours.
D. List of items or tasks with quantity/hours, descriptions,
calculations, dollars, and references.
16. Primary Cost Elements
Labor
Cont…
• Labor categories
• Identify any temporary labor
• Actual manufacturing reports
to support standard costs
17. Primary Cost Elements, Continued…
Material
Cont…
• Quotes to support at least 80% of costs.
• Actual manufacturing reports to support standard costs.
Travel
• Location, number of travelers, number of days, number of trips.
• Estimated airfare, rental car, fuel, parking, and tolls.
• Actual per diem and lodging (with estimated taxes and fees).
18. Primary Cost Elements, Continued…
ODCs
Cont…
• Estimates.
Subcontractors
• Obtain CCPD for any proposals exceeding TCPD threshold
(currently $2M).
• Include CCPD and written analysis for any proposals
exceeding $13.5M or 10% of prime award in your proposal.
19. Primary Cost Elements, Continued…
Indirect Costs
Cont…
• Best – forward price rate agreement.
• Better – approved provisional billing
rates.
• Good – provisional billing rates.
“Good, better, best. Never let it rest until the good get
better and the better get _______.”
20. Primary Cost Elements, Continued…
Facilities Capital Cost of Money
Cont…
Facilities capital cost of money (FCCM) is the government’s
method to track the estimated cost of contractors using their
own money to invest in facilities and equipment that benefit the
government.
• It’s an imputed “interest-like” expense since interest is an
unallowable expense.
• Multiply the book value of capital employed by the applicable
Treasury rate(s).
21. Primary Cost Elements, Continued…
FCCM Calculator
Cont…
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Jan-Jun 2.625% 2.500% 2.500% 2.500% 2.500% 2.500% 2.500% 2.500% 2.500% 2.500%
Jul-Dec 3.500% 1.875% 1.875% 1.875% 1.875% 1.875% 1.875% 1.875% 1.875% 1.875%
Average COM Rate 3.0625% 2.1875% 2.1875% 2.1875% 2.1875% 2.1875% 2.1875% 2.1875% 2.1875% 2.1875%
Building
Beginning Net Book Value 450,000$ 438,462$ 426,923$ 415,385$ 403,846$ 392,308$ 380,769$ 369,231$ 357,692$ 346,154$
Ending Net Book Value 438,462$ 426,923$ 415,385$ 403,846$ 392,308$ 380,769$ 369,231$ 357,692$ 346,154$ 334,615$
Average Net Book Value 444,231$ 432,692$ 421,154$ 409,615$ 398,077$ 386,538$ 375,000$ 363,462$ 351,923$ 340,385$
Cost of Money - Building 13,605$ 9,465$ 9,213$ 8,960$ 8,708$ 8,456$ 8,203$ 7,951$ 7,698$ 7,446$
Improvements
Beginning Net Book Value 150,000$ 140,000$ 130,000$ 120,000$ 110,000$ 100,000$ 90,000$ 80,000$ 70,000$ 60,000$
Ending Net Book Value 140,000$ 130,000$ 120,000$ 110,000$ 100,000$ 90,000$ 80,000$ 70,000$ 60,000$ 50,000$
Average Net Book Value 145,000$ 135,000$ 125,000$ 115,000$ 105,000$ 95,000$ 85,000$ 75,000$ 65,000$ 55,000$
Cost of Money - Improvements 4,441$ 2,953$ 2,734$ 2,516$ 2,297$ 2,078$ 1,859$ 1,641$ 1,422$ 1,203$
Building 11,538$ 11,538$ 11,538$ 11,538$ 11,538$ 11,538$ 11,538$ 11,538$ 11,538$ 11,538$
Improvements 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$
Maintenance
Taxes
Property Management
Insurance
Cost of Money - Building 13,605$ 9,465$ 9,213$ 8,960$ 8,708$ 8,456$ 8,203$ 7,951$ 7,698$ 7,446$
Cost of Money - Improvements 4,441$ 2,953$ 2,734$ 2,516$ 2,297$ 2,078$ 1,859$ 1,641$ 1,422$ 1,203$
Total Cost of Ownership 39,584$ 33,957$ 33,486$ 33,014$ 32,543$ 32,072$ 31,601$ 31,130$ 30,659$ 30,188$
Facilities Capital
Cost of Money Calculator
Allowable Rent - Effective Cost of Ownership - FAR 31.205-36
Cost of Money Rates
Assets
https://www.leftbrainpro.com/tools/cost-of-money
24. Primary Cost Elements, Continued…
Time Phased
Cont…
• Hours and dollars by task/CLIN by year.
• Include subtotals and totals-
• By labor category
• By task/CLIN
• By year
28. FAR 15.404-4(a)(30)
Cont…
• 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.
29. FAR 15.404-4(a)(30), Continued…
• Negotiation of extremely low
profits, use of historical
averages, or automatic
application of predetermined
percentages of total estimated
costs do not provide proper
motivation for optimum
contract performance.
30. Profit and Fee
Cont…
Profit or fee amount does not equal net income
Just as actual costs may vary from estimated costs, the
contractor’s actual realized profit or fee may vary from
negotiated profit or fee, because of such factors as efficiency
of performance, incurrence of costs the Government does not
recognize as allowable, and the contract type. FAR 15.404-
4(a)(1)
31. Profit and Fee, Continued…
Cont…
Profit or fee amount does not equal net income
Items that come out of profit:
• Federal income taxes
• Unallowable costs
• Interest expense
• Charitable contributions
• Employee welfare
• Cost overruns
• Fixed price contracts
• Unbillable costs
32. Profit and Fee, Continued…
Uses of profit
Working capital (can’t take cash out of business)
• Internal investments
• Funding growth/other contracts
• Floating A/R
Owner/investor rewards for risk
• Companies in business to make money
• Investors expect a return
33. Three Limitations in FAR 15.404-4(b)(4)
A. R&D work on CPFF shall not exceed 15 percent of the
contract’s estimated cost, excluding fee.
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, drawing, 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.
40. Separate Labor and Material
• Escalate each separately
• Labor varies by category and geography
• Material varies by commodity
• Single factor may not give fair consideration to a component
46. Room Poll
Escalation should be:
A. Based on time, labor, materials, and geography.
B. A flat amount for all years.
C. The same amount for labor and materials.
D. What the prime told me to use.
47. Complex FAR regulations can be overwhelming, especially when
submitting cost and price proposals to the government. We hope
this webinar provided you with an overview of what's necessary
when preparing a comprehensive cost and price proposal that
maximizes profit and ensures regulatory compliance.
Cost & Price Proposals
48. Room Poll
How confident are you in the quality of your cost and price
proposals?
A. Extremely, they’re perfect!
B. Mostly, but could be tweaked.
C. Somewhat. We struggle.
D. Not at all.
49. Connect
with us
Download the presentation
Left Brain
Professionals Inc.
@LeftBrainPro
@LeftBrainPro
Email us
Support@LeftBrainPro.com
www.LeftBrainPro.com/presentations
50. For information on our upcoming webinars, visit us at
LeftBrainPro.com/events for more details.