GovCon Pricing Strategy Blog

A Framework (Courtesy of GAO) for Successfully Bidding Below-Cost on Cost-Type Contracts

Thu, 16 Jan 2025 19:07:50 GMT

How can government contractors successfully submit a below-cost proposal for a cost-type contract and avoid unfavorable Government probable cost adjustments? Let this GAO protest case (B-418942) serve as a successful framework.

In this case, the protestor lost to a competitor's lower evaluated price because the protestor's bid of $251M ($22M below their estimated cost) was adjusted by the Army to $271M. The GAO sustained the protest and said the Army erred in adjusting the protestor's price because the protestor made a credible contractually binding offer to limit their price.

Cost Realism and Probable Cost Adjustments

Normally, on cost-type contracts, Government evaluators will upwardly adjust the price of proposals deemed unrealistic (i.e., too low). These adjustments can unfavorably swing the source selection decision to another competitor. However, when offerors agree to cap rates or otherwise establish a ceiling on their price, agencies may not adjust that offeror's price because that portion of the proposal is now considered fixed price.

What key ingredients in this protestor's proposal convinced the GAO that the Army's probable cost adjustments were unreasonable and inappropriate? Likewise, what key questions should government evaluators consider to determine if a below-cost offer is credible and should not be adjusted?

They ensured compliance

Key evaluator question: Does the solicitation restrict or forbid below-cost offers?

The protestor correctly understood that while the RFP did not explicitly restrict or forbid below-cost offers, the instructions warned offerors that any inconsistency between promised performance and proposed cost required adequate explanation (including business policy decision to absorb a portion of the estimated cost). Consequently, failure to do so could result in a finding of Technical Unacceptability or a finding that a proposed cost is unrealistic for work to be performed.

They fully costed the contract

Key evaluator question: Has the offeror adequately resourced and costed the effort in accordance with the Performance Work Standard (PWS) and the technical proposal?

The protestor identified and estimated the costs of all resources necessary to meet the PWS requirements and provided enough detail to fully demonstrate that the resources identified in their technical proposal aligned with the resources included in their pricing proposal.

They explicitly quantified the discount

Key evaluator question: Has the offeror clearly and unambiguously quantified the cost/price reduction?

After building the fully costed proposal, the protestor added a separate cost element summary line-item that explicitly quantified the costs to be absorbed by the protestor (which was $22M), thus lowering the overall price.

They clearly articulated their binding intent

Key Evaluator question: Does the offeror understand will not fully recoup their costs?

The protestor's proposal clearly stated they were making a business decision to 'absorb' certain costs (which were redacted in the published protest) and included a legally binding promise to limit the cost to the agency to a specific total throughout the performance. The terminology here was key because the protestor wasn't decrementing, offsetting, or otherwise adjusting their cost estimate (which could introduce an inconsistency between the priced resources and the resources identified in the technical proposal). By using the term 'absorbing,' the protestor communicated their intent to incur these costs during contract execution and would not invoice the Army for these costs.

They identified all parties involved in the discount

Key Evaluator Question: Which teammates are absorbing costs?

The protestor clearly stated their subcontractors were not part of the cost absorption decision and reiterated that their subcontractors submitted fully costed proposals.

They explained how these costs would be absorbed

Key Question: How will the offeror pay for/fund the cost absorption?

The protestor stated they intended to pay for these costs using corporate funds. This statement reinforces and backs up the earlier claim that the price reduction is not a cost reduction via the reduction of resources assigned to the contract.

They declared their acknowledgment and acceptance of risk and responsibilities

Key Evaluator Question: Does the offeror commit to meet the performance requirements and standards of the PWS?

The protestor's proposal included a formal statement acknowledging and accepting the risks and responsibilities associated with their business decision. This included key statements reiterating their understanding of the financial impact of the business decision and commitments that this decision would not impact their operational approach to managing and executing task orders to meet PWS requirements and associated performance standards.

They demonstrated access to funds

Key Contracting Officer Question: Can the offeror afford to invoice for less than their costs?

This is a responsibility question per FAR Part 9.104 – not a cost realism question that impacts evaluated price. It's an important ingredient that ensures contract award eligibility. The protestor's proposal documented that they were a financially sound and transparent publicly traded corporation with a strong cash position and fully capable of absorbing the cost of this Business Policy Decision.

Final Thoughts

Pricing contracts below estimated costs is a risky strategy and not is a strategy companies should normally adopt. However, given the right opportunity, companies can use these eight key points as a high-level approach to building a credible below-cost offer. The precise steps to adopt a below-cost offer for a specific opportunity will depend on the specifics of each solicitation and your team's unique financial circumstances. For evaluators, this framework also represents a helpful guideline for determining the credibility and realism of a below-cost offer.

About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a consulting firm focused on providing federal contracts pricing analysis and pricing volume support to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at https://www.federalpricinggroup.com/ .

Checkmate! 3 Pricing Ghosts Competitors Can Use to Unseat the Incumbent Prime Contractor

Mon, 01 Mar 2021 13:14:33 GMT

An incumbent’s familiarity with the customer’s organization, processes, and mission requirements appears to create an insurmountable competitive advantage. Look out! Here are three pricing ghosts usurpers could use to unseat the incumbent (and how you, the incumbent can respond).

1. Incumbent Staff Are Overqualified

We’ve seen many re-competitions where the new solicitation required experience levels significantly below the incumbent contract’s average experience levels. This is one of the biggest pricing traps faced by incumbents. There is an irresistible urge for the incumbent to bid their current experienced staff as-is despite the reduced experience requirements. Why? Because the incumbent “knows the customer” and the customer “knows us”. Conversely, the usurper will extol the Government’s wisdom in establishing these lower experience levels and will bid less expensive staff whose experience exactly matches the Government’s requirements. Incumbents should thwart these tactics and similarly price staff with experience levels to match solicitation’s requirements. If the incumbent cannot resist the urge to price staff that exceed the experience minimums, then the incumbent must articulate a clear value proposition that leads evaluators to identify a clear strength of using more experienced staff. That strength ultimately must warrant the price premium of using more experienced, higher priced staff to survive in a best-value trade-off.

2. Incumbent Staffing Levels Are Bloated

The usurper will intimate that outdated and inefficient incumbent processes, along with lack of new tools and automation, have created incumbent staff bloat and ultimately higher costs. The usurper’s careful analysis will show ‘efficiencies’ can be applied that allows for the same throughput of product and services at a reduced headcount. As an incumbent, your pricing strategies should exorcise this ghost by demonstrating how the incumbent staff has already delivered more work (than originally anticipated) over the life of the incumbent contract with the same staffing levels. Additionally, where the solicitation allows offerors to propose staffing levels that differs from the Government’s suggested staffing levels, the incumbent should identify some staffing reductions and give those savings to the Government in the form of reduced pricing.

3. Incumbent Pay is Exorbitant

Many incumbents price the same experienced staff for the follow-on contract and simply escalate their incumbent salaries. Just as no tree grows to heaven, the same employees working in the exact same and unchanging role will, over time, eventually become too expensive. Usurpers will demonstrate that current incumbent salaries for a given function or role are approaching or (gasp) exceeding the highest salary percentiles when compared against market data from salary surveys. The usurper’s proposal will proclaim savings by ensuring that their salaries are aligned to current market compensation ranges. If “overpaid” essential incumbent employees require retention at reduced salaries, the usurper will make those incumbent employees whole (usually via retention bonuses) until a suitable replacement can be found or the incumbent employee is transitioned into a new (more valuable role). The incumbent should block this maneuver by promoting non-key incumbent staff into more senior roles on the follow-on contract. Newly promoted employee salaries tend to be in the lower end of the pay band range of the new role. So, those employees now appear to be very reasonably priced. Other senior staff that can’t be promoted on or out of the project can be cross trained to take on additional value-added responsibilities without additional costs.

Whether you are an incumbent seeking to secure a must win re-compete or you’re a competitor seeking new markets and opportunities, let Federal Pricing Group’s experts help formulate the right winning pricing strategy on your next proposal.

Three resolutions to to strengthen your competitive pricing posture

Thu, 28 Jan 2021 19:24:31 GMT

As federal contractors look forward to a fresh start in the new year, here are three resolutions to to strengthen your competitive pricing posture.

We will develop, maintain, prune, and communicate the Company’s opportunity pipeline to all stakeholders

An opportunity pipeline is not a candidate list of final RFPs that dropped last week. It is a well-organized and longer-term list of opportunities that is continually evaluated and vetted to help the company plan, organize, and fund business capture and proposal development. A well-maintained federal contracts opportunity pipeline improves competitive pricing by:

Giving more lead time for open market competitive pricing research and to analysis of documents received from Freedom of Information Act (FOIA) requests. These analyses feed your price to win analyses and improves your understanding of the competitive pricing landscape.
Providing an opportunity to conduct top-level pricing. These early pricing iterations helps identify and facilitate timely no-bid decisions, so B&P funds are not wasted on losing prospects.
Helping identify common pricing requirements among the opportunities and build reusable pricing artifacts, so B&P funds are spent more efficiently.
Serving as an early warning radar that identifies highly desired opportunities that are too big and too complex to pursue without additional pricing resources and expertise. The sooner you can plan, budget, and reserve additional pricing resources and expertise, the better positioned you will be.

We will engage pricing earlier in the capture process

Oftentimes, federal contractors do not engage their pricing resources (or pricing consultants) until AFTER the final RFP drops. This is unfortunate because it takes a lot of pricing strategy homework to fully understand the contract’s requirements and then craft a clear and convincing value proposition that is price competitive. This pricing strategy homework includes:

Early solutioning and top-level pricing iterations to understand benefits/features and pricing tradeoffs.
Seeking responsive pricing inputs from teammates to make better outsourcing/in-sourcing decisions.
Assessing your competitive pricing position and performing price to win analysis.
Identifying and preparing key pricing strategies to deploy as needed.

The best time to engage pricing resources (including pricing consultants) and begin this pricing strategy homework is before the draft RFP is released. This is especially true for re-competitions of existing incumbent contracts due to expire in the next 12-24 months. Engaging pricing resources earlier in the capture life cycle gives everyone ample time to fully understand the opportunity and its pricing implications. Also, by starting earlier, companies can judiciously leverage the use of consultants to address specific gaps in their pricing resources and expertise.

We will adequately budget and plan our proposal development and pricing resources

According to the Deltek|Clarity Government Contracting Industry Study, large firms have a higher median win-rate than smaller firms. I believe that one of the reasons for larger business’s win-rate success can be attributed to their discipline to budget dedicated business capture and proposal development resources, including pricing. Smaller firms are less disciplined. By failing to adequately plan and budget dedicated employees or outside consultants for capture, proposal development and pricing, smaller firms are over-reliant on 1) mad hatter owners who shun delegation and 2) the ‘sweat equity’ (i.e., unpaid overtime) of their staff. Consequently:

Key technical staff are being spread too thin between client work and proposal solutioning/writing.
Finance staff are juggling their time building error-free pricing models and writing compliant cost volumes while tackling their other day-to-day operational responsibilities.
Owners and founders are fostering chaos from their continued dabbling in proposal management instead of delegating a dedicated resource.

It should come as no surprise that firms with overextended staff end up with half-baked and overpriced solutions. These losing proposals are money wasters and staff de-moralizers. Adequate proposal budgets do not have to mean larger budgets if companies resolve to adopting Resolutions #1 and #2. By prioritizing and planning higher probably of win opportunities (and culling the rest), companies can concentrate on fewer, better funded proposals to achieve their sales and growth targets.

Make it a new year’s resolution to contact Federal Pricing Group and get the pricing help and expertise you need on your upcoming key federal contract opportunities.

Six R's for Justifying Higher Profit on Your Next Contract

Mon, 04 May 2020 12:35:31 GMT

Years back, I recalled a DOE Contracting Officer for a “M&O” cost reimbursable type contract commenting to the prime that the two percent fee they were earning was very generous and that the contractor should be grateful. I was appalled and could remember saying to myself, “Who in their right mind would think 2 percent profit is acceptable?”. Was my opinion reasonable? Let’s look at six reasons “six R’s” for justifying higher profit on your next contract.

1. Risk . Government work is NOT risk-free work . Contract award delays can disrupt a contractor’s business plans. Changes in U.S. Administration can create policy shifts and a re-sort of priorities that can lead to program cuts, recissions, and cancellations. Contract direct and indirect ceiling rates and fixed hour labor rates shift inflation and cost growth risk onto the contractor. Higher profit reflects the ‘consideration’ for contractors absorbing such risks. Lastly, prime contractors assume responsibility and risk for the performance of their subcontractors. It is entirely reasonable for a prime to earn profit on the deliverables and efforts of their subcontractors as 1) compensation for taking such risks, 2) a motivator for executing make vs. buy efficiencies, and 3) for the value the prime adds helping the Government avoid administrative hassle when the Government bundles multiple requirements into large contract vehicles that require large contractor teams.

2. Reserve . Think rainy-day fund. Who would have thought the recent COVID-19 outbreak could have wreaked such havoc on businesses? The pandemic is a good example of unknown risks that can strike a business. Profits are an important source of funds that build up reserves to pay for unanticipated expenses or cushion the blow of unexpected revenue shortfalls.

3. Recoupment . Profit helps government contractors recover unallowable costs, such as interest expense, that are nevertheless legitimate business costs. Government contractors pursuing aggressive growth goals rely on lines of credit to ensure access to adequate working capital to fund larger payrolls and subcontractor costs. They subsequently incur interest expense when they tap those credit lines. Since the FAR considers interest expense as an unallowable (and therefore a non-reimbursable) cost, profit is the only means by which these contractors can offset these types of legitimate business costs.

4. Retained Earnings . Profits retained in the business (i.e., not distributed as dividends, owner draws, or profit sharing) nourishes future growth and investment in improved products and services. Insufficient profit starves companies of an important source of capital and forces them to use (more expensive) debt and equity financing to fund that growth and investment.

5. Reward . Profit sharing is an excellent way to reward employees for both a job well done and for helping the Company operate with economy and efficiency. Also, since profit sharing isn’t technically a cost, it doesn’t get entrenched as an entitlement into the Company’s cost structure. So, it’s an effective way to ensure indirect rates stay low while also motivating continued high performance.

6. Return . Business owners endure enormous risks to start and grow a business. Unless there’s an adequate return on that investment and risk, business owners won’t be incentivized to take such risks. That ultimately would mean fewer business ventures started and ultimately reduced innovation and price competition in the market.

Final thought . In every single case above, higher profit not only benefits the contractor, it ultimately benefits the Government - either through better products and services or through a financially strong contractor that can weather disruptions. As a matter of policy, the Federal Acquisition Regulation recognizes the importance of profit – “ 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). Don't deprive your business of an important source of capital. Think about these six R's of profit in your next pricing proposal.

Cost Compliance: Not Everybody Does It, But Everybody Should

Wed, 02 Oct 2019 12:07:46 GMT

Win themes, discriminators, persuasive language, price to win, cutting edge solutions, graphics galore … these are the fun things that everyone wants to ensure grace their proposals from cover to cover. These items address the purpose of the solicitation and allow an offeror to show off their best side to the Government. These are all important and are the focus of many color-team reviews, strategic discussions, teaming arrangements and management meetings. After all, these are the areas that specifically relate to what the offeror does . However, there is one other key area that is a whole lot less fun to address but is no less important: Compliance . In the time crunch and limited budget environments to prepare the “fun” parts of the proposal, too many offerors will pay lip service to, or completely disregard, the compliance aspects of the solicitation. Surprisingly, this is especially true with cost proposals, which typically run on a separate track from the main proposal volumes.

A compliant cost proposal alone does not make for a fun read. It will not be compelling or trigger an emotional response in the reviewer, nor will it flow with the same voice as the other volumes. There is not much about making a cost proposal compliant that is actually an enjoyable experience. However, failure to address compliance early in your cost proposal process will have devastating effects during your proposal’s evaluation. While the aforementioned “fun” items can flow into your cost volume as well and will make a proposal enjoyable to read, a non-compliant proposal can get all of that hard work thrown out before the volumes are completely evaluated. In this regard, it is imperative that companies allocate adequate schedule, resources, and processes toward preparing compliant cost proposals. As stated by former U.S. Deputy Attorney General Paul McNulty, “If you think compliance is expensive, try non‐compliance.”

What Influences Compliance?

Compliance is not a behavior that a company can selectively apply and have repeatable success in the Govcon arena. Compliance must be ingrained in the company culture and all aspects of management, operations, finance, and business development. A contractor that practices compliance in all aspects of the business will understand the need to address all the requirements in a solicitation, and they will understand the consequences of not meeting those requirements. Common areas that successful contractors will adequately invest for cost proposal compliance are:

Proposal Cost: Proposal budgets, staffing, and schedules will all factor in the cost of complying with the solicitation.
Proposal Structure: The proposal is structured, and tailored as necessary, to clearly address all preparation, content, print, delivery and evaluation requirements.
Support Information: Within the cost proposal, or as attachments, all required supporting documentation is gathered and logically organized.
Corporate Costs: The company implements adequate systems, processes, and policies to enable creating supported, auditable proposals and all proposal participants are trained to ensure compliance with requirements.

Companies that do not embrace compliance will discover an assortment of other additional costs. A company can find their proposal rejected due to non-compliance, which promptly classifies all the Bid & Proposal costs as a wasted expense and the disqualification can be demoralizing to the staff that spent long nights and weekends to create the proposal. There is an opportunity cost where the time and budget spent on a non-compliant proposal could have been spent on other opportunities. Contracting offices will take note of companies that repeatedly fail to comply with their carefully crafted solicitation requirements. Additionally, failure to follow the basic, required steps to complete a compliant proposal do not project confidence that the contractor could faithfully deliver the required products or services once under contract.

Occasionally, a company will address compliance solely within the proposal process only to have post-award issues during contract execution. While it is possible to project compliance with a well-oiled “proposal machine,” companies that only comply enough to get an award may find themselves faced with a post-award termination due to lack of necessary systems, controls, processes, and trained personnel to faithfully execute the scope of work. There are few things worse on a past performance evaluation than contracts terminated for cause, and that termination will linger in future evaluations and impact the ability to win future opportunities.

What Best Practice Ensures Cost Proposal Compliance?

Regarding cost proposals, the best approach to ensure compliance is to utilize a Cost Compliance Matrix to shape the structure and content of the cost proposal. Many companies will build a compliance matrix for their technical, management, and past performance volumes, but will often not construct a matrix specifically for the cost volume. As the cost volume is seldom page limited, it is prudent to include the Cost Compliance Matrix within the cost volume itself, with cross-references to the proposal section where the RFP requirement is addressed. While it would seem obvious to create this matrix for the cost volume, it is amazing to see how many companies do not consider this a necessity when building their cost proposals.

The Cost Compliance Matrix will shape the structure, order, layout, and content of the cost volume. As closely as possible, organize the compliance matrix and subsequent cost volume sections in the same order as Section L. After that, a careful review of the solicitation should be performed to extract any “shalls,” “wills,” or “musts” from the proposal instructions, usually from Section L and Section M. Offerors should address each requirement thoroughly and completely, leaving no doubt to the evaluator that the requirement has been satisfied. Additionally, when preparing a proposal, a company may find that there are requirements that are not applicable. In these situations, the Cost Compliance Matrix is a vital tool to communicate to the Government that the company acknowledges the requirement and explains why the requirement does not apply. By taking a proactive approach to requirements that do not apply, the company can assure the evaluator that the lack of response to the requirement is intentional, and not an error of omission.

Conclusion

Compliance is a culture that must be created and cultivated across all aspects of the business. Investment in tools, processes, training, and adequate proposal staffing and budgeting will ensure staff are generating compliant proposals and not running the risk of proposal disqualification or post-award termination. On every cost proposal, a Cost Compliance Matrix is an essential tool to clearly document cost proposal requirements and the location of the offeror’s response to the requirements. The Cost Compliance Matrix should be included in every cost proposal as an aid to the evaluator. It is in every company’s best interest to invest resources into compliance, since non-compliance has severe repercussions and should never be an option when pursuing Federal contracts. For additional reference on the mechanics of building a Cost Compliance Matrix, reference https://www.federalpricinggroup.com/back-to-basics-building-a-robust-pricing-volume-compliance-matrix .

About the author: Dan Fox is Partner and Principal Consultant at Federal Pricing Group, a firm focused on providing expert contract pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. You can find more resources like this article at https://www.federalpricinggroup.com/blog .

Indirect Rates - The Basics | Federal Pricing Group

Wed, 20 Feb 2019 00:00:00 GMT

Indirect Rates and the impacts they have on price competitiveness and profitability

We are kicking off a multi-post series to help business leaders and owners understand the relationships between indirect rates, price competitiveness and profitability. Business leaders who understand how various corporate decisions impact their company’s indirect rates can foster more competitive pricing when pursuing federal contracts. For this to occur, managers must know what goes into indirect rates, how they’re calculated, and when they can be adjusted. Additionally, managers should gain an understanding of how indirect rates relate to different contract types. This series will start with explaining the fundamental purpose and calculation of indirect rates. Then, we’ll review the indirect rates common to government contractors, such as Fringe, Overhead and G&A, and dive into the composition and major cost drivers of each one. We’ll explain the differences between, Provisional Billing Rates, Forward Pricing Rates and Impact Rates and discuss why those differences matter in proposal pricing. Finally, we’ll provide insights into levers, dials and trade-offs business leaders should consider when forming a pricing strategy involving indirect rates and example how difference strategies impact company profitability.

What are Indirect rates and why do we use them?

Indirect rates are used to allocate the pro rata share of indirect costs to contracts that benefit from that indirect cost. This is to ensure each contract shares in its fair portion of the indirect burden. It is also an important tool companies use to recoup management, administrative and overhead expenses from their government customers. For the purposes of this discussion, contract, and final cost objective, are used interchangeably. This post will review the components of indirect rates and illustrate how they are calculated.

What are the differences between direct and indirect costs?

The first step in understanding indirect rates is knowing the difference between direct and indirect cost. FAR 2.101 states: “Direct cost means any cost that is identified specifically with a particular final cost objective.” In this context, a cost objective can be thought of as a contract. Costs identified specifically with a contract are direct costs of that contract. Likewise, all costs identified specifically with other contracts are direct costs of those contracts.

For government contractors, direct costs usually mean the labor, material, subcontracting, inventory and travel expenses that are expended in an effort of to achieve the scope and meet the requirements of a specific contract. A good rule of thumb is the “but for” rule. “But for this contract, I would not incur this cost”. When this statement pertains to a specific cost, chances are it’s a direct cost.

Conversely, indirect costs are costs that benefit two or more contracts. “Indirect cost”, as defined by FAR 2.101, “means any cost not directly identified with a single final cost objective but identified with two or more final cost objectives”. Indirect Costs are those cost that provide support and/or management of a project but not directly charged to the program. A good example of this could be IT Support. As the IT team installs, repairs and maintains computer systems throughout the company, they are helping more than one contract simultaneously. The important thing to remember is; the primary reason companies choose to designate a cost as “indirect” is because it benefits two or more contracts concurrently as it’s being incurred. For most federal contractors, typical indirect costs include Executive, HR and Financial salaries, facilities costs, employee benefits, paid time off and employee health insurance.

What goes into an indirect rate and how is it calculated?

As shown in the equation below, an indirect rate is obtained by dividing an indirect cost pool by the appropriate allocation base. The numerator of the equation, Indirect Cost Pools, are costs grouped together based on their similar beneficial or causal relationship to a particular cost objective. For example, Fringe Benefits are pooled based on their beneficial relationship to labor costs. Engineering overhead costs are grouped together based on their beneficial relationship to the Engineering function1. As a rule, companies should have enough indirect cost pools so that each are grouped logically based on the reasons they are being incurred. When determining which indirect costs belongs in which pool, the key question is, “What portion of the company benefits from this expense?”

Indirect Rate % = Indirect Cost Pool/ Allocation Base

The denominator of the equation, the ‘Allocation Base’, represents a measure of business activity or the cost that benefit or drive the indirect cost pool. Typical examples of an allocation base include, direct labor dollars, direct material costs, or direct labor hours. The key here is a base should be directly related or causes the indirect cost to be incurred. Indirect Costs Pools and Allocation Bases commonly used among government contractors are listed in the table below.

Indirect Rate	Indirect Pool	Allocation Base
Fringe	Employee Costs: Paid Time Off, Healthcare, Payroll Taxes, Retirement Benefits	Total Productive Employee Labor
Overhead	Operations Support: Labor Cost for Supervision, Production Facilities Costs, IT Service,	Direct Labor and Fringe on Direct Labor
Material Handling	Labor cost for purchasing and subcontracts department, warehouse costs.	Material and subcontract costs
G&A	Costs associated to run the entire company: Executive Salary, Human Resource and Accounting, Legal, Facilities Cost for HQ.	Total Cost Input or Value Added1

1An examination of Total Cost Input vs Value Added Allocation Bases will be reviewed in an upcoming post.

To demonstrate how cost allocation works, let’s use a fiscal year-end actual Divisional Overhead Costs as an example. To determine the overhead rate, the Total Divisional Overhead Pool is divided by Total Divisional Direct Labor which is used as the Base. The result is a Divisional Overhead rate of 10%.

Total Divisional Overhead Costs (Pool): $500

Total Divisional Direct Labor (Base): $5,000

Divisional Overhead Rate = 10%

The Divisional Overhead Rate is then applied to each contract within the Division in order to allocate its pro rata share of Overhead Burden.

Divisional Contract	Direct Labor	Overhead Rate	Allocation Overhead
Contract A Direct Labor Costs:	$1,500	10%	$150
Contract B Direct Labor Costs:	$850	10%	$85
Contract C Direct Labor Costs:	$1,900	10%	$190
Contract D Direct Labor Costs:	$750	10%	$75
Total Direct Labor & Overhead	$5,000		$500

As direct labor cost is being incurred by each of the Division’ s four on-going contracts, each receives its share of the overhead costs. So, the total cost of Contract A is $1,650 representing $1,500 of direct labor cost and $150 of allocated Overhead costs. Also notice that Contract C had the highest allocation of Overhead cost because Contract C had the largest amount of direct labor cost.

Suppose we want to know how much to Charge the customer on Contract B next year based on this year’s cost? Assuming next year looks a lot like this year, we should ensure the price of Contract B is at least $935 so that we recoup our direct costs of $850 and $85 worth of Overhead costs.

It’s important to keep in mind that Government contracts pricing is about projecting what will occur in the future. We rely on projected indirect rates that are based on direct and indirect cost estimates. Like all cost estimates, actual cost may, and probability will, vary. It’s vital to monitor indirect rates based on actual costs and compare them to indirect rates base on forecasts for the same period. Why is this important? Because fluctuations to a company’s indirect rates can significantly impact cashflow and profitability. In upcoming posts, we’ll examine how changes to indirect costs over time have different consequences to a company’s bottom-line depending on contract type (i.e. T&M, FFP or Cost-Plus). Additionally, we’ll discuss the composition of indirect rates common to government contractors, the major cost drivers of each and how managers can use that knowledge to position their company to be price competitive.

AF- ECMM Pricing Synopsis

Tue, 19 Feb 2019 00:00:00 GMT

Summary

This $100M follow-on contract seems to have escaped credible competition for the last 10+ years. We’re curious to see if the current large business incumbent can work their magic through a SDVOSB partner and maintain their iron grip on this contract.

Background

The draft solicitation, FA8003-19-R-A002, is designated as a Service-Disabled Veteran Owned Small Business (SDVOSB) set-aside. The Air Force contemplates award of a single 60-month contract consisting of a base period and (4) 12-month option periods.

The ECMM program is designed to provide medical logistical support personnel for routine staffing at various locations for assemblage packaging of War Reserve Materiel (WRM), inspections, and audits; and provide medical logistical support personnel for temporary surge in workload for contingency, humanitarian, and base exercises. The same services are provided to top secret locations under the JANUS project, which is a classified, strategic, national medical contingency program. The work is segmented into four parts: (I) Air Force Medical War Reserve Material Industrial Operations, (II) Consolidated WRM Storage and Deployment Centers, (III) Maintenance Support Services for Other CONUS/OCONUS-P SME Staffed Locations, and (IV) Maintenance Support Services.

This legacy program has a curious 12-year contract history. As far as we can determine, only a single contractor has bid on this effort to date. First, a $7.8M delivery order was awarded to CACI-ISS (FA4452-09-F-0001) under a Department of Veteran Affairs IDIQ contract (VA798-P-0002) in October 2008. It grew modestly to $8.2M at completion in December 2012. Meanwhile, a separate and larger Air Force Medical Support Activity War Reserve Materials (WRM) In-Garrison Maintenance IDIQ contract (FA7014-08-D-0017) was awarded to the same prime in March 2008. This 60-month IDIQ contract grew from $85M to $93.9M and expired in April 2013. Next, the U.S. Army Health Care Acquisition Activity (HCAA) awarded a 5-month $6.7M sole source bridge contract (W81K04-13-D-0031) in May 2013. The Army let the contract expire for the follow-on GSA Professional Support Services (PSS) task order (W81K04-13-F-0013) awarded in October 2013. The 60-month task order (still managed at the time by the Army) grew slightly from $74.8M to $75.6M at completion. An Air Force 2018 Justification & Approval , indicates the Air Force resumed responsibility in 2018 and issued a 24-month $33.4M sole source contract to the same incumbent. This most recent sole source contract (FA8003-18-C-0003) reflects the current incumbent contract.

Pricing Details

The Air Force will award (1) contract with an expected base period start date of 2/1/2020. The award will be made based on ‘best value’. Consistent with the legacy contracts, this solicitation is considered a commercial item acquisition. Furthermore, since RFP states the Contracting Officer has determined an expectation of adequate price competition, pricing requirements and documentation are very streamlined. And, by utilizing a fixed price contract, there is no requirement for cost data, cost analysis, or subsequent cost realism analysis. The Government will perform only price analysis and ensure offeror pricing is not unbalanced.

There is currently no requirement to provide a cost and pricing narrative nor a basis of estimate (BOE). The draft RFP requests offerors to complete the Excel pricing attachment. The draft pricing template contains 27 CLIN/Sub-CLINs of which (7) are pre-populated plug figures for travel, training, and Transition In/Out period. Separate tabs by CLIN/Sub-CLIN are used to input labor hours. Labor rates are automatically fed into these CLIN tabs from a centralized labor rate tab. The template collates all CLINs into a summary tab which contains a Base and (4) Option Years.

The labor rate tab identifies labor rates for 33 different locations. The template comes pre-populated with 13 labor categories that are common for each location. The pricing template requests fully burdened rates inclusive of profit/fee. As stated above, the template is very straightforward and does not request any cost breakdown of labor rates nor request any details on offeror indirect rates or their profit objective.

Some Pricing Questions

Despite the very streamlined pricing requirements and (non-existent) pricing narrative requirement, we think offerors should seek some pricing clarifications on the following:

SCLS Covered Positions . Although the contract contains SCLS clauses and the Government confirmed (in their answers to industry) that the contract will contain SCLS covered positions, the current draft RFP does not contain any Department of Labor Wage Determinations. Offerors should ensure the final RFP contains all relevant Wage Determinations.
Overtime Pay . Section 5.5.2 states, "The Offeror shall submit fully burdened base and overtime hourly rates (inclusive of direct costs, indirect costs, and profit) for each of the labor categories located in the Pricing Workbook (Attachment X)." However, the current draft pricing template does not appear to accommodate separate base and overhead rates. Offerors should request the Government clarify this requirement.
Template Modifications . While the RFP (specifically Section 5.5.3) would appear to permit offerors to use alternative labor categories, we would be very careful about making any changes to the pricing template labor categories. The current template is partially locked which would prohibit offerors from copying the formulas correctly. In fact, all the pre-populated formula cells have been locked down and cannot be selected to edited. Making such changes is likely to break the pricing template. We think offerors should request that the Air Force completely unlock the pricing template.

Conclusion

While the pricing requirements for the draft RFP are very tailored, a solid understand of the underlying contract requirements is still needed to sufficiently estimate labor hours. The Air Force has provided a significant amount of logistics data, by location. Offerors should ensure they have a solid underlying basis for their labor estimates in case the Air Force decides to ask for clarifications or conduct discussions.

Incurred Cost Proposal Season is Right Around the Corner

Thu, 08 Nov 2018 15:10:52 GMT

Congratulations! You won a flexibly priced federal contract, obtained provisional billing rates, achieved an adequacy determination on your accounting and timekeeping systems, submitted adequate invoices, and just finished closing your books at the end of your fiscal year. Things are going great! However, the next major task looms on the horizon: the Incurred Cost Proposal.

What is the Incurred Cost Proposal?

The Incurred Cost Proposal calculates and documents a firm’s actual direct and indirect costs and ultimately compares the contractor’s “billed” costs versus “claimed” costs on cost reimbursable type contracts or contract line items. Unlike the commercial world, federal contractors are not necessarily entitled to keep all the funds invoiced on cost reimbursable type federal contracts. The Government may be entitled to recoup some of their payments to the contractor for costs invoiced in excess of actual costs incurred. Conversely, the contractor may be entitled to recoup additional payment from the Government when actual costs incurred exceed the invoiced cost.

Why do I need to complete an Incurred Cost Proposal?

The FAR outlines the requirements and activities you will need to do, and by when. FAR subpart 42.7 “Indirect Cost Rates” outlines the types of indirect rates for contractors performing government contracting, the manner in which the rates are determined, and the purpose of the specific indirect rate type. This subpart will also direct contractors to the “Allowable Cost and Payment” clause at FAR 52.216-7 , which provides the specific timing requirement for submission of the incurred cost proposal at six months from the completion of the contractor’s fiscal year. Further, the “Allowable Cost and Payment” clause outlines the various required schedules of direct and indirect costs, as well as other supporting information, required to prepare an adequate incurred cost proposal. The number and complexity of the various required and optional schedules can be overwhelming for new government contractors.

Where do I begin?

Fortunately, there are readily available resources available to help government contractors get started in the right direction. For example, the Defense Contract Audit Agency (DCAA) is tasked with auditing incurred cost proposals for government contractors performing on Department of Defense contracts and as such, the agency provides extremely thorough documentation to explain the required schedules and provide insightful context. Section six of the “DCAA Information for Contractors Manual” covers the requirements, purpose, audit process, and provides explanation of the evaluated cost elements. In addition, the manual introduces government contractors to the DCAA Model Incurred Cost Proposal structure and the Incurred Cost Electronically Model, commonly called the ICE Model. Not only must a new government contractor read and understand all of the documentation, they must apply the one-size-fits-all nature of the regulations and guidance to their unique financial structure.

Growing government contractors typically need help with the practical application of the guidance to their business structure. While the regulation and documentation regarding incurred cost proposals is abundant, their application to a specific government contractor’s situation is not always clear-cut. Furthermore, some of the regulations leave the assessment of reasonableness open to interpretation, and presume contractor understanding of unallowable costs versus expressly unallowable cost. Because of factors such as these, smaller, growing government contractors need specialized assistance to ensure compliance and maintain a solid working relationship with their cognizant audit agency.

For many first-time submitters, the incurred cost proposal represents the first rigorous testing of the firm’s allocation of costs throughout the organization, along with their classification as direct or indirect, and allowable versus unallowable. If the in-depth analysis, planning, and scrubbing of costs were not performed adequately in the development of the provisional billing rates, those weaknesses must be addressed during completion of the Incurred Cost Proposal.

Help is Available!

Consulting firms such as Federal Pricing Group have the expertise to help you prepare timely, accurate, and complete Incurred Cost Proposals that will meet the adequacy requirements of your cognizant audit agency. We guide small, growing government contractors through the Incurred Cost Proposal process. If you are unsure of where you stand with your Incurred Cost Proposal process, or if you are aware of what needs to be done but simply lack the resources, contact Federal Pricing Group today.

Help! The Government Has Pricing Questions! What Now?

Mon, 05 Nov 2018 00:00:00 GMT

After months of wondering what happened to your proposal submission, the Government has responded with pages of pricing questions. Now what? Here’s three tips to help you answer pricing questions.

Common Issues

Generally, cost and pricing questions fall into four broad issue areas:

Omission The Government believes something is missing from your price proposal. It could be something as simple as a sub-total calculation error or something more serious such as unpriced tasks that are identified in your technical volume, but not included in your price.
Necessity The Government believes something priced into the proposal is not relevant or ‘in-scope’. Sometimes a lack of a clear explanation of how costs were derived and or calculated can also lead the Government to question certain costs. Lump sum costs, without underlying details and explanation, are a great example of this.
Consistency The Government believes something in your pricing doesn’t align with your technical volume. This can occur when last minute pricing drills shave costs (such as staff hours), but the change is not reflected in the technical volume (or vice versa).
Reasonableness/Realism If the Government says a particular cost appears ‘unreasonable’, they’re saying they think it’s too high. Conversely, if the Government says a particular cost appears 'unrealistic', they’re concerned it's too low.

Three Helpful Tips

How should companies respond to these questions?

1. Don't fight the Fed.

Even if you disagree with the evaluator's question, keep in mind there’s something unclear in your proposal that created ambiguity and doubt in the evaluator’s mind. Don’t take it personally. Avoid argumentative language in your responses that just serves to aggravate the evaluators and doesn’t help you to address the issues raised. The fact that the Government may think a proposed cost might be too high (or too low) doesn’t necessarily mean you should revise your price. Often the Government uses terms such as ‘Justify’, ‘Substantiate’, ‘Clarify’, ‘Explain’, etc. to describe their need for additional information.

2. Fortify answers with facts and data, not more unsubstantiated assertions.

The four main issues: Omission, Necessity, Consistency, and Reasonableness/Realism almost always boil down to a lack of adequate documentation and substantiation as a root cause. Provide corroborating evidence to justify unit costs and rates. Clearly explain how costs were derived and/or calculated.

3. Make it Easy for the Evaluator.

If you elect to revise your pricing, clearly track those changes in your pricing model. This is especially important when there are numerous and significant changes to price. The Government needs to understand how and why your price changed. Highlight cost elements that were added to your proposal. Identify unit cost and rates that were revised. Flag items that were removed from your revised proposal. Also ensure to provide a brief narrative summarizing what has changed in your revised proposal pricing.

Conclusion

Breathe a little sigh of relief. Your firm has progressed through 1st cut. While your firm hasn’t won the contract (yet), the Government believes your proposal has enough merit and deems it worthy enough for additional consideration.

Remember, the Government is evaluating MANY proposals in addition to your proposal. Contracting officers want to progress to contract award, now ! Help them by clearly, accurately, comprehensively responding to evaluator pricing questions. Give the evaluators the missing pricing facts and data they need so they can demonstrate they evaluated your winning proposal objectively, fairly, and consistently.

About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a consulting firm focused on providing expert contracts pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at https://www.federalpricinggroup.com/ .

Building a Robust Pricing Volume Compliance Matrix | Federal Pricing Group

Mon, 15 Oct 2018 17:24:18 GMT

What do legendary basketball coach John Wooden and federal contracts pricing have in common? Both required adherence to fundamentals. Coach Wooden focused on a simple fundamental – the proper way to put on socks and sneakers, before anything else. His premise was simple, if socks slip, they create blisters which reduces the player’s practice and ultimately diminishes game performance. In federal contracts pricing, a pricing volume compliance matrix is the equivalent fundamental of socks and sneakers. If you slip up with the pricing compliance matrix, you’re sure to put blisters on the pricing volume that can jeopardize the performance of your bid.

We all generally understand the importance of proposal compliance matrices. Given the pricing volume's complexity (which typically combines pricing, contract terms and conditions, representations and certifications, (distinctive) subcontractor pricing/data, and other business information) a compliance matrix is critical. So, let’s get back to simple fundamentals and summarize five good practices for building robust pricing volume compliance matrices.

1. Don’t assume proposal managers understand cost/pricing.

If you’re the pricing volume lead, it’s your responsibility to develop a comprehensive pricing volume compliance matrix. The pricing requirements listed in Section L of the RFP can be detailed, complex, and, at times, contradictory. Oftentimes, a non-expert will focus on higher level requirements and omit essential lower level details. If the proposal manager (or client) says the pricing compliance matrix is already completed, don’t argue. Just thank them, take whatever matrix they hand you, and augment the matrix with the rest of the missing information.

2. Capture and organize all pricing requirements.

Search and highlight all ‘shalls’, ‘musts’, and ‘shoulds’ in Section L. At a minimum, the matrix should track each requirement, the RFP section and page, and a the pricing volume section reference. Follow the RFP instructions and organize your pricing volume requirements as specified in Section L. It’s not uncommon for the RFP to contain redundant, conflicting, and poorly organized pricing requirements. If RFP does not specify the organization of the pricing volume, then align the pricing volume in the same order as the Section L pricing sections appear in the RFP. Try to group similar requirements into a logical higher-level outline item. For example, requirements related to labor rates, uncompensated overtime, Service Contract Act, work-week, etc could be grouped under a “Direct Labor” subsection. Try to strike a balance between outline breadth and depth. I prefer each section/sub-section to contain no more than 5-7 child elements. Also, carefully review the solicitation to determine if your pricing volume must include completed priced contract line items (CLINs) and other rates and ceilings from Section B of the RFP. If so, be sure your compliance matrix tracks Section B requirements too. Finally, don’t forget to carefully review Section H of the RFP for any special contract clauses that limits what the government will pay the contractor. These constraints might need to be factored into your pricing proposal. Common examples include restrictions on labor escalation and/or maximum labor rates the government is willing to pay.

3. Pay attention to subcontractor requirements.

Unfortunately, today, many federal government solicitations request detailed pricing information from both the prime contractor AND subcontractors. This is true regardless of whether or not the solicitation calls for certified cost and pricing data. Don’t let subcontractors become your weakest link in the pricing volume. Add extra columns to your compliance matrix to flag which pricing requirements are also applicable to subcontractors. Add an extra subcontractor column if the RFP distinguishes between ‘major’ subs and ‘minor’ subs since minor subs typically have less requested pricing detail. Plan to flow a tailored pricing compliance matrix, populated with the requirements, to your subcontractors early in the proposal process as practical to give them adequate time to meet their proposal demands. This will make your job easier when it becomes time to review your subcontractor’s pricing submissions.

4. Give “BOE’s” special care.

If the solicitation requires submission of ‘Basis of Estimate’, take extra care to separately track these beasts. Identify each BOE and be sure to track BOE assignments. “One BOE” is typically one Work Breakdown Structure (WBS) element out of a set of WBS elements. Sometimes it’s more complex than that. Since BOE’s are replicated across CLINs, SLINS, etc., it’s best to prepare a separate matrix that can serve as a BOE compliance checklist. Finally, be aware of hidden requirements in the form of government provided assumptions (which may not have a ‘shall’ in them). For example, if the government says, “Assume 10 locations of support.”, the compliance matrix should ensure this requirement is captured and the location of where the contractor addressed this mandated assumption. That way the government can check off assumption compliance.

5. Track pricing data and information requirements.

Oftentimes, other data and contractual content are included within the pricing volume. For applicable pricing requirements, identify the specific data elements/information required, the authoritative point of contact who can provide the information, completion status, and finally notes (to track specific actions taken to collect the information).

The importance of a robust pricing compliance matrix cannot be understated. Almost every RFP warns offerors that non-compliant proposals are grounds for elimination. Winning proposals aren’t just built. They are engineered. A thoroughly detailed pricing compliance matrix helps bidders limit pricing errors, omissions, and inconsistencies. Let your robust pricing volume compliance matrix be your fundamental building-block for producing a well-designed and compliant pricing volume.

About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a consulting firm focused on providing expert contracts pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at https://www.federalpricinggroup.com/ .

Federal Transit Administration 2019 PMO Draft RFP Pricing Synopsis

Sun, 30 Sep 2018 00:00:00 GMT

Summary

For primes and subcontractors without a Government or CPA approved accounting system, time is running out to bid on this $670M IDIQ re-compete.

Background

The 2019 Federal Transit Administration (FTA) Project Management and Oversight (PMO) contract, under solicitation 69319519R000001, is a re-compete of the 2014 PMO Services contract. The FTA PMO program’s mission is to protect federal investments in transit infrastructure by providing effective, risk-based oversight of the project sponsor’s delivery of major capital projects. The objectives of the PMO contracts are to provide FTA with professional services in the form of oversight to render critical programmatic inputs for a variety of FTA program decisions for its grants programs and major capital projects.

The 2019 procurement is a full & open competition conducted under FAR Part 15 with a $670M combined ceiling (which is $80M lower than the 2014 PMO contract ceiling of $750M). FTA will make multiple Indefinite Delivery/Indefinite Quantity contract awards with a five-year ordering period. While FTA did not disclose the total number of 2019 potential awards (the 2014 contract had 20 total awardees), they intend to award at least five IDIQ contracts to small businesses.

Pricing Volume Contents

The draft RFP heavily reuses content from the 2014 solicitation. In some cases, the 2019 solicitation inaccurately refers to 2014 sections (example Section B.18 is now B.28, and Section B.19 is now B.29). The cost/price proposal contains three tabs: 1) cost and price, 2) cost and price proposal, and 3) accounting system, and audit information.

First, all teammates, including non-major subcontractors, must submit their prior fiscal year balance sheet and income statements ‘to demonstrate the financial capability to perform a contract of this size and duration’. All teammates must also specify the financial resources available (i.e. working capital, lines of credit, etc) and provide a bank point of contact (or other financial institution). Primes additionally must provide their two most recent audited financial statements (or reviewed statements in the case of a small business prime).

Second, there are three pricing attachments required. Attachment J-7 contains the cost plus fixed-fee (CPFF) pricing summary. Attachment J-8 contains the firm fixed price (FFP) pricing summary. Attachment J-13 contains the “B.18 and B.19 Labor Rate Matrix” tables that identify proposed ceiling rates. For pricing the proposal, FTA identified a 5-year total of 87,500 staff hours distributed among 29 prescribed labor categories (as compared to 19 prescribed labor categories from the 2014 solicitation). Three of the 29 positions are ‘key’ and (new for this contract) twelve are considered ‘Mission Critical Personnel’. Offerors cannot propose additional labor categories for the IDIQ award. The contract generally calls for personnel with experience from 3 years for clerical, 5-7 years for level I staff and 10 years for Level II staff and for the Program Manager.

Like the prior contact, PMO 2019 has two sets of annual labor ceiling rates, one for “CPFF” task orders (Table B.28) and a 2nd set for “FFP” task orders (Table B.29). The FFP ceiling rates are fully burdened rates and inclusive of profit. Both schedules have a “TBD” escalation. However, Section L instructs offerors to use 3.0% escalation which is slightly higher than the 2.75% rate prescribed in the 2014 solicitation. Ceiling rates are intended to reflect ‘composite team rates’ (prime and all subcontractors). We recommend offerors plan on separate rate justifications since the rates utilized in Attachment J-7 are used as part of the evaluated price while rates utilized in Attachment J-13 establish the IDIQ contract ceiling rates.

Buried in the instructions, the RFP requires offerors to propose their rates on a contract-year basis, not contractor fiscal year. However, FTA has not provided an anticipated contract start date. Given the fact FTA has requested offeror proposals be valid for 365 days, we would assume a 1 Jan 2020 contract start date since the 2014 FTA competition took slightly less than one year to award after the final RFP drop.

In the third and final part of the pricing volume, offerors must provide evidence of: 1) an adequate accounting system and 2) approved final indirect rates. The accounting system approval can be in the form of a formal approval from either a cognizant government audit agency or a Certified CPA. Importantly, the accounting system must be approved at the time of submission of the proposal for the prime and all major subcontracts or JV partners. Additionally, these same companies must provide a completed pre-award accounting system survey (Attachment J.6).

For final indirect rates, the prime and each proposed subcontractor (team member) must submit statements certifying the most recent year for which final audited indirect rates have been approved by a Federal Government cognizant audit agency. Importantly, if the prime’s, or their major subcontractors’, indirect rates have not been audited, each must provide detailed information showing cost accounts included in each of their cost pools to explain all overhead rates, G&A markups, labor burden (fringes), and any other pools and provide statement from an independent Certified Public Accountant (CPA), not an employee of the contractor stating:

Established cost pools are currently in accordance with FAR 31 regarding overhead, G&A, and other indirect costs as well as the overhead, G&A, and other indirect cost rates and
the Offeror’s, JV, Partnering/Teaming, or major subcontractor accounting system is deemed acceptable and in compliance with Generally Accepted Accounting Principles (GAAP).

Indirect Rates

Offerors will establish both their provisional and ceiling indirect rates in Section B.24. Similar information is required for all subcontractors in Section B.25. (This table makes no distinction between major and minor subcontractors). For indirect rates, FTA requires a full buildup that show both pool and base cost for each indirect rate. This information is required for all members of the bidding team (FTA did not distinguish between major and non-major subcontractors). The instructions also require the indirect rate information by contract year, so offerors should be prepared to show pool and base information annually. Next, offerors must include their negotiated indirect rate agreement. Finally, offerors are required to show final year-end indirect rates or audited final indirect rate for the prior three contractor fiscal years.

Subcontract Pricing

The draft RFP distinguishes a ‘major subcontractor’ as any proposed subcontractor anticipated to perform work with a value of $2M or more over the contract period. Importantly, essentially all subcontractors and teammates proposed must also provide similar levels of pricing details and pricing backup.

For evaluation purposes, the RFP compels the bidding team to adhere to a ‘CPFF’ type pricing buildup. Attachment J.7 is the ‘cost proposal worksheet’ to calculate the ‘notional’ contract CPFF. Interestingly, Section M.2(d) amplifies the expectation of cost reimbursable type subcontracts, “…[P]rime offerors, JV, teaming arrangements, major subcontractors/team members will be required to perform on a cost-reimbursement basis shall possess an adequate accounting system in order to receive an award.” Meanwhile, Attachment J-8 is used to compute annual fully burdened labor rates inclusive of profit. The attachment does not distinguish between prime and subcontractor rates and does not (by default) account for possible separate burden of subcontractor costs.

Fee is disallowed on consultant costs (as well as travel and other direct costs). Curiously, FTA’s pricing attachment J-7 refers to subcontract labor cost as ‘Subcontracted Consultant Services’ and subsequently excludes this line item from the prime’s fixed fee calculation. We know that some offerors pool fixed fee at the prime level, but caution offerors to carefully weigh their fee strategy. While a CPFF pricing structure is mandated for the RFP, there’s no guarantee that once the IDIQ contract is awarded, CPFF subcontracts will be utilized for all subcontractors, especially those small business subcontractors without an adequate accounting system. Primes, if not careful, could end up unintentionally diluting their actual fee on cost rate significantly during contract execution.

Proposal Evaluation

Like the 2014 PMO procurement, FTA will follow a two-step evaluation process to cull bidders. To make the 1st cut, offerors must have ‘an acceptable accounting system in accordance with FAR 16 and ‘sufficient corporate capability (including resources and financial)'. Final awards will be based on ‘best value’. FTA warns that offerors whose accounting system has not been reviewed and formally approved by a cognizant Government audit agency or Certified by a CPA for determining costs under a cost-reimbursement contract are not eligible for award. Thus, offerors who can’t meet this basic requirement should forgo bidding on this contract and save their B&P funds.

FTA will conduct a cost realism analysis. The prime’s and major subcontractor/team member’s proposed cost rates and cost factors will be adjusted to reflect any increases or reductions in cost elements to realistic levels based on the results of the cost realism analysis. Analysis of non-major subcontractors will be limited to review of major cost elements to determine whether they are realistic and reasonable. While FTA doesn’t state non-major subcontractor prices will be adjusted, the draft RFP states FTA “reserves the right to employ the detailed cost analysis procedures”, presumably to include cost realism adjustments.

These evaluation instructions clearly apply to the Attachment J-7 CPFF pricing template. However, Attachment J-8 also contains a pricing template to compute total contract value based on fully burdened labor rates. Offerors must fill in the labor hours for each prescribed labor category, presumably using the same hours identified for use in Attachment J-7. The fully burdened rates are then applied to the annual labor hours to derive a ‘5-Year Sum of Total Direct Cost’. It is unclear whether or how the J-8 calculated labor cost influences the total evaluated price since the draft RFP is not clear on whether the total evaluated price reflects J-7 only or a combination of J-7 and J-8. We think this is an important issue to clarify with FTA.

Conclusion

First, for offerors (especially small business primes) without an approved accounting system, time is running out. Offeror accounting systems must be approved by the time of proposal submission . Second, time may also be running out for subcontractors. The pricing and documentation requirements for this solicitation, while detailed, aren’t necessarily that complex. However, this pricing and documentation detail is required from almost all teammates and subcontractors. It will be essential for primes to aggressively plan, track, and evaluate subcontractor pricing submissions, including accounting system and final indirect rates, to ensure submission of a compliant bid.

Finally, we think offerors should request FTA clarify what pricing and documentation requirements are applicable to ‘non-major’ subcontractors, especially those that are small businesses.

About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a consulting firm focused on providing expert federal contracts pricing analysis and pricing volume support to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at https://www.federalpricinggroup.com/ .

Pricing Synopsis for the NavAir Logistics Support/Technical Data Solicitation

Mon, 13 Aug 2018 00:00:00 GMT

Summary:

The Naval Air System Command at Patuxent River, Maryland is soliciting bids for a follow-on requirement to provide technical data and logistic analysis Contractor Support Services (CSS) to augment the mission of the Logistics Product Data Division. This solicitation is a Total Small Business Set-Aside reserved for competition among eligible 8(a) small businesses. The NAICS code is 541330 and the small business size standard is $38.5 million annual revenue. The resultant award will be a Single Award Indefinite Delivery/Indefinite Quantity contract. This contract allows for an ordering period of years with both CPFF and FFP task orders.

Scope of Work:

The scope of this contracts includes lifecycle support of weapons systems logistics product data. Preparation and publishing products may be ordered in either of two methods: fixed price CLINs or non-fixed price CLINs.

Required tasks will include:

Technical publication support
Logistic Configuration management/technical directive support
Technical Libraries,
Repositories, and Data Control Center (DCC) support
Logistics Information Technology support
Technical Data Package (TDP) - Acquisition and sustainment support, and technical data Conversion/ digitization support.

Contract Types:

Contract line item numbers (CLINs) for logistics support services will result in a Cost-Plus-Fixed-Fee (CPFF) contract. Technical manual/publication updates CLINS will be Firm-Fixed Price (FFP). ODC CLINs for travel and material will be cost reimbursable (no fee).

Place of Performance:

Potential customers requiring support include the following sites: The Fleet Readiness Centers at Cherry Point, Jacksonville, and North Island and their respective In-Service Support Centers (ISSCs), NATEC San Diego, NAWCAD Lakehurst, NAWCAD Patuxent River, NAWC TSD Orlando, NAWCWD China Lake, Point Mugu and Tinker Air Force Base.

Price/Cost Volume Requirements for CPFF CLINS:

The Government provides 34 labor categories with a designated level of effort for each applicable place of performance. For each labor category, Offerors are required to provide their Fully Burdened Rates (FBR) detailing labor rates for all prime contractors and their subcontractors. Fully burdened labor rates are defined as direct labor rates plus all applicable indirect burdens (i.e. Fringe, Overhead and G&A) and Fee.

When proposing a Fully Burdened Rate from a subcontractor, the Prime must include its subcontractor pass-through costs where applicable. This usually takes to form of a subcontractor handling percentage or G&A and the Prime’s Fee percentage.

Navy Trip Wire Policy:

The Navy designated a procurement “Tripwire” for proposed fully burdened labor cost exceeding $300K. Tripwires are applied in a procurement when the Navy determines costs of a product or service “require greater visibility and conscious decisions by higher levels of management.” The explained in more detail in the Commander, Naval Sea Systems Command Instruction 4200.19A of 1 July 2016. Offerors that propose a fully burdened per employee labor cost exceeding the labor tripwire of $300K per year will have to provide rationale in their cost proposal narrative section that justifies the reasonableness of the tripwire cost for the applicable employees. If your company’s proposal exceeds a tripwire threshold in this or any other solicitation, remember that the cost involved will receive additional scrutiny from the Government Evaluators. Make cost justifications like salary surveys, payroll records or historical cost comparisons, easy to find easy to reference. Follow the FAR proposal analysis techniques described FAR.404.1; document and explain why the proposed costs in question is fair and reasonable.

Total Professional Compensation Plan

The Navy requires each offeror to include a Total Professional Compensation Plan and will evaluate the plan in accordance with FAR 52.222-46. This requirement is usually an indication the Government is concerned with the quality and stability of the work force to be employed on this contract. Unrealistically low Salaries and Fringe benefits for proposed job categories can impede an Offeror’s ability to hire and retain qualified employees. Both can impair a contractor’s performance. Therefore, Offerors are required to provide a plan enunciating salaries and fringe benefits proposed for the professional employees who will work under the contract. The plan will be evaluated to assess the Offeror’s ability to hire and retain qualified employees with the proposed costs. Offeror should expect to provide (at minimum):

Salaries, for each professional employee proposed, supported by payroll records. If the proposed rates are based on contingent hires, then offer letters with terms of employment, signed by the recipient should be included. If a current or future employee is not slated for the position, national and regionally recognized survey compensation surveys can be used by the Offeror.
The plan should include summary of the benefits that make up the fringe package (e.g. vacation time, sick leave, stock, incentive plans, family leave, life insurance, severance pay, bonus plans, health insurance, holidays, location allowance, retirement benefits). If employees contribute to their benefits, then offeror should include an itemized list of benefits that require employee contributions, and the amount of that contribution as a percentage of the cost of the benefit.

Service Contract Act (SCA) and Collective Bargaining (CB) Agreements:

In addition to professional compensation, Offerors must demonstrate applicable employees are proposed in accordance with to the Service Contract Act and Collective Bargaining Agreements. Of the 39 named labor categories provided in Section L of the RFP, the Government designates 7 positions to where the SCA is applicable.

Offerors are required to set forth salaries and fringe benefits proposed for employees (including temporary and part time employees) who will work under the contract and are subject to the SCA.

Offerors must propose employee’s wages in accordance with the Wage Determination schedule established by the SCA and included in the RFP. A cross reference mapping should be included with the names of the proposed labor categories and the corresponding labor categories from the attached Wage Determination, as well as documentation of compliance with the minimum monetary wages and fringe benefits for service employees as specified in the Wage Determination provided in the solicitation.

Likewise, the same type of cross referenced mapping is recommended for Collective Bargaining Agreements as they apply to proposed employee who are union members.

Indirect Rates:

Offerors are required to provide either a Forward Pricing Rate Agreement (FPRAs), Forward Pricing Rate Proposal (FPRPs), DCAA Provisional Billing Rate Approval Letter, DCAA Final Billing Rate Approval Letter, or DCAA Forward Pricing Rate Agreement recommendation. If these items can’t be furnished, then the offeror can provide three (3) years of actual indirect information consisting of the actual costs used to determine the cost pool and allocation base, and the resulting indirect rate.

Price/Cost Volume Requirements for Firm Fixed Price (FFP) CLINS

In addition to the CPFF portion of the effort, offerors are required to provide a price for 26 separate Technical Manuals (TM) as specified in the RFP. These TM efforts shall be prepared to cover operation and maintenance of aircraft, missiles, bombs, targets, and other equipment, and support equipment in support of naval weapons system. The TMs shall be prepared in accordance with cited specifications and the Technical Manels Contract Requirements (TMCR). The contractor’s pricing may be page/unit based or other FFP rationale to complete the task. For each technical manual, the Government provides the number of pages for each year of the contract.

Subcontractor and Workshare Reporting

Prime offerors are required to list each subcontractor and JV team members of their Team along with the teammates expected place of performance and percentage of workshare. In addition, subcontractors have the same Cost Volume requirements as primes. This includes completing the spreadsheet attachments provided in the solicitation.

Evaluated Contract Price vs Proposed Price

The Government will base award on Best Value among the offerors using the offeror’s Total Evaluated Price/Cost. This means the government will conduct a realism analysis on the CPFF portion of the proposal to determine the most probable cost (MPC). Cost realism analysis is the process of independently reviewing and evaluating specific elements of each Offeror’s proposed cost to determine whether the proposed cost is realistic for the work to be performed and are consistent with the unique methods of performance and materials described in the Offeror’s technical proposal.

If the Government finds certain costs are unrealistically low, then the proposed price will be adjusted upward accordingly, thus creating an Evaluated Price that is higher than the proposed price. The new Evaluated Price will be used when comparing each Offeror Value/Cost trade off. This issue is particularly important when you believe your company has a cost advantage over your competitors and therefore plan to submit a lower price than most other bidders. In this case it’s essential your company provides adequate cost substantiation to demonstrate you can execute the contract at the proposed cost. Cost substantiation can include labor surveys, payroll records, historical pricing for similar items, and indirect rate verification such as provisional rate agreements.

Unrealistically low costs or inconsistencies between the Technical and Price/Cost Volumes may be assessed as risk to the Government and could be considered weaknesses under the technical factor. Therefore, quality controls should be in place throughout the proposal process to prevent inconsistency, whether real or apparent, between the Technical Volume and Price/Cost Proposal. For this solicitation, this includes ensuring the key personnel and labor categories cited in the Technical Solution have adequate cost justifications in the Price/Cost Volume.

FFP CLINS will be evaluated as proposed since the contractor carries the risk of offering FFP that is too low. However, each offeror’s price proposal will be evaluated to determine whether it is complete, reasonable, and whether it contains balanced unit pricing. In its evaluation, the Government will perform a price analysis to assess if the Offeror’s proposed price is fair and reasonable. The Government may use various price analysis techniques, detailed in FAR 15.404-1, such a comparison of the Offeror’s proposed price to competing Offerors’ prices in response to this solicitation, comparison to historical pricing for same or similar DoD contracts, comparison to the Government’s independent price estimate, comparison to commercial and/or industry standards, among other techniques to perform the price analysis.

About the author: Al Pearce is Partner and Principal Consultant at Federal Pricing Group, a firm focused on providing expert contracts pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at https://www.federalpricinggroup.com/ .

Army Fires Center of Excellence Training Mission Support Draft RFP Pricing Synopsis

Thu, 09 Aug 2018 00:00:00 GMT

Summary

The pricing requirements for this 5-year $247M IDIQ look like smooth sailing. However, pricing hazards may be lurking just below the surface.

Overview

The solicitation, issued by MICC-FORT EUSTIS, represents a full & open competition under solicitation number W9124L18R0016 listed under NAICS 541990, PSC U008. It replaces prior solicitation number W9124L-17-R-0022 (a small business set-aside which has since been cancelled). This is a multiple award IDIQ contract for up to (5) awardees with a combined ceiling value of $247M over the five-year ordering period (8 February 2019 – 7 February 2024).

IDIQ contract holders will compete for fixed price task orders (TOs) that will also utilize cost reimbursable travel and ODC CLINs. Individual TOs will use contractor’s proposed fixed labor rates for labor categories incorporated at IDIQ award. Importantly, the Army warns that Cost, Labor Hour (LH), and Time & Materials (T&M) type TOs are not allowed under this contract. Incidental T&M/LH CLINs are also not allowed.

Summary of Services Requested

The successful offeror will provide support to the Fires Center of Excellence (FCoE) in its mission to develop and produce training strategies, doctrine, concepts, instruction and products for the current and future force.

The IDIQ has 13 “primary task areas” consisting of: (1) Concepts and Capabilities, (2) Training and Development, (3) Doctrine Development Support, (4) Organizational Development Support, (5) Instructor and Training Development and Support, (6) Test and Evaluation Support, (7) Information Technology Support, (8) Experimentation and War-gaming, (9) Studies and Analysis Support, (10) Models and Simulations (M&S) Support, (11) Science and Technology, (12) Material Requirements Support, (13) Operational Environment Support.

Source Selection

The solicitation contains standard language regarding the evaluation of pricing. The Army will evaluate pricing for reasonableness and ensure pricing is not unbalanced. Award will be a ‘best value’ tradeoff source selection. Section M.1.3 also notes, “ The Government is looking for the offerors that demonstrate superior technical expertise and offers the best possible qualified personnel in order to mitigate the risk inherent in the performance of this requirement. A proposal that demonstrates superior processes, plans, and ability to provide better qualified personnel may be worth more to the Government than a proposal that just meets the minimum needs. The Government has identified the following specific Best Value Tradeoff goals for this requirement and will consider paying more for an Offeror that clearly demonstrates its capability to recruit and retain high risk, hard to fill positions for performance in a rural, low density area (Fort Sill, OK) for (i) Joint Terminal Attack Controllers (JTAC), (ii) Electronic Warfare (EW), and (iii) Multiple Air Defense Artillery (ADA) instructors/operators .”

Pricing Requirements

The proposal consists of five (5) separate volumes/files: (I) General, (II) Mission Capability/Risk, (III) Past Performance, (IV) Small Business Participation, and (V) Price. The pricing volume (with no page limitations) consists of 1) a price narrative and 2) a completed Excel Pricing Worksheet (Attachment 5). Certified cost or pricing data are not required. The Pricing Worksheet contains “Tab A” Labor Category Pricing and “Tab B” Sample Task Order Base”.

“Tab A” is a simple matrix consisting of 33 labor categories. Offerors will provide a fully burdened ‘ceiling rate’ for each of the (5) contract years and identify whether the labor category is subject to Service Contract Act (SCA). The pricing exhibit does not request offerors to distinguish their rates between ‘Gov’t Site’ and ‘Contractor Site’ work locations. Offerors are permitted to propose additional labor categories and are required to explain how the proposed labor category relates to the Government listed categories.

“Tab B” consists of (2) Excel tabs for Base Year Pricing and (1) One-Year Option Pricing. The sample task order contains five major task requirements that address all (13) IDIQ specified task areas. The task order pricing is very streamlined. Offerors identify prime and total subcontractor labor hours, PWS paragraph, and labor category and then apply a burdened labor rate to arrive at an extended price. A 3-month “Phase-In” period is identified in the base year. There are no requirements for pricing breakouts by individual subcontractor nor any requirements for “rate buildups”.

Pricing Issues and Questions to Consider

Roll Your Own Narrative

The solicitation is mostly silent on pricing narrative requirements. The introductory statement in Section L.4.5 broadly states, “ This section shall consist of all information required to support the proposed prices located in the pricing worksheets described below, and Schedule B ”. Clearly, different offerors will have different interpretations for what constitutes ‘all information required to support the proposed prices”.

No Indirect Cost Information Required

The solicitation is also silent on accounting system adequacy and indirect rate information requirements. We note that since the contract contains cost reimbursement type CLINs, offerors should be permitted to burden their travel and ODC costs according to their accounting system practices. Section 1.6.23 of the IDIQ PWS contained some peculiar language which stated, “ Contractor administrative fees and profit are not allowable costs that can be claimed for ODC reimbursement. (Examples include but not limited to: reproduction, and shipping expenses associated with training activities.) ” We recommend offerors seek clarification and confirm formally that offerors are permitted to burden ODCs with their applicable indirect rate(s). We’re not sure why the Army hasn’t requested indirect cost information. We hypothesize that delaying the submission of this information until an apparent winner is selected may foster increased competition and reduce the Government evaluation burden.

Method for Pricing Army’s Option to Extend Services

Section M.3.6 states the Government will evaluate its FAR Clause 52.217-8 Option to Extend Services by adding six (6) months of the offeror’s final option period price of the Sample Task Order to the offeror’s total price. The pricing template does not account for this six-month extension and offerors are instructed not to propose this extension period. Regardless of how the Army has priced these extensions on past solicitations, we recommend offerors leave nothing to chance and confirm the Army will price this extension with Year 2 proposed task order rates since it could influence pricing strategy.

What is the Priced Contract?

Section B contains (4) generic CLINs: 0001 – FCOE Support Services (FFP), 0002 - FCOE Travel (Cost), 0003 – FCOE ODCs (Cost), and 0004 – FCOE Contractor Manpower Reporting (CMR) FFP. These are the basic CLINs identified at the IDIQ level that will be subsequently used for individual task orders. Section L.4.5 contains the following language, “ A Section B (Supplies or Services and Prices/Costs) shall be submitted fully completed and error free in the narrative. It shall contain the offeror’s prices for the established Contract Line Items (CLINS). ” We’re unsure why the Army has inserted this requirement. Section M.3.6 clearly states that the sample task order will NOT be awarded. Also, while the Army has provided historical workload data (Attachment 7), they have not requested the offeror to prepare any pricing utilizing this information. The data represents 652,360 hours (or 347 FTE) across (31) labor categories. It’s unclear whether this data is supposed to represent a historical analog to the sample task order or merely represent average annual workload across all potential task orders. We note the historical data aligns with the labor categories identified in the pricing template. However, the pricing template contains two additional labor categories not present in the historical data: Program Manager (Alt) and Instructor – THAAD. We recommend offerors request the Army clarify what the Attachment 7 data is supposed to represent.

Locale Differentials

Upon award, the proposed rates will become part of the contract and be the maximum rate allowable (ceiling rate) for that labor category when pricing task orders. The solicitation warns offerors, “ The fully burdened labor rates proposed for each year cannot be adjusted except for instances where the labor categories are subject to the Service Contract Labor Standards and a revision is permitted under the provisions of FAR Clause 52.222-43 -- Fair Labor Standards Act and Service Contract Labor Standards -- Price Adjustment (Multiple Year and Option Contracts) .” Offerors should carefully consider their pricing options as the U.S. is likely exiting from a relatively stable and low wage inflation environment into a potentially more volatile one. Furthermore, Section 1.6.5 of the IDIQ PWS states that while work will be performed primarily at Fort Sill, the IDIQ leaves open the possibility of temporary duty at overseas locations and for work to occur at other locations which will be specified at that Task Order level. Offerors should request further clarification on potential places of performance based on historical experience. Offerors may want to clarify with the Army whether any potential salary uplifts for OCONUS work would chargeable as an Other Direct Cost.

Conclusion

While the pricing exhibits and the pricing volume appear to be simple and straightforward to prepare, the solicitation presents some interesting complexities in pricing strategies. The proposed labor rates are ceiling rates that are used not only for establishing ceilings, but also can be used by the Army for projecting future budget requirements. All task orders issued will be firm fixed price giving offerors significant flexibilities in terms of both pricing the task orders and executing them. Finally, with (5) possible awardees and the ability to propose IDIQ additional labor categories, there’s ample pricing strategy options available.

About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a firm focused on providing expert contracts pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. Learn more at https://www.federalpricinggroup.com/ .

NAVAIR SAIL Pricing Synopsis

Mon, 09 Jul 2018 00:00:00 GMT

Summary

There’s some rough seas ahead for building the pricing volume on this 5-year, $40+M engineering support contract until NAVAIR addresses some of some conflicting issues and clarifies scope of transition costs.

Overview

The Naval Air Warfare Center Aircraft Division Pax River Surface/Aviation Interoperability Laboratory (SAIL) solicitation (N00421-18-R-0045, NAICS 541330) is a follow-on to the current incumbent contract N00178-05-D-4663-M809, awarded in 2014 to Wyle Laboratories Inc, and expiring in April 2019. There are (8) incumbent subcontractors: American Electronic Warfare Associates, Engility Corporation, Heron Systems, ITG Global, LLC, Organizational Strategies, Inc. and Solute, Inc. As of February 2018, $23.1M of $44.1M has been obligated.

SAIL essentially functions as an operational U.S. Navy ship for aircraft in the Patuxent River MD area to test with and verify that their systems will be interoperable with before they are fielded and deployed. This contract will provide engineering, technical, operational, test and logistics services in support of the SAIL efforts related to conduct of Joint and Navy research and development (R&D) programs; systems integration; simulation and stimulation systems development, test planning and conduct; command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems interoperability; and, technology demonstration programs.

Contemplated Contract

The five-year contract contains both fixed price and cost type Contract Line Items (CLINs) with annual staffing of 27 FTEs. NAVAIR intends to award to one offeror on a best-value basis. All evaluation factors other than Price/Cost, when combined, are significantly more important than Price/Cost. Approximately 98 percent of work will be performed on-site at Naval Air Station (NAS) Patuxent River, the remaining 2 percent of work is to be performed at Contractor site(s) as required.

Cost Volume

The cost volume consists of 1) summary contractual information, 2) a populated copy of Section B CLINs and Sub-CLIN unit price, quantity and total prices 3) Completed Attachment P6 (Cost Summary Spreadsheet), and 4) Attachment P7 (Fully Burdened Labor Rates).

The RFP defines a ‘principal subcontractor’ as a subcontractor who provides at least 20% of the proposed total price (excluding prime fee) OR provides one or more key personnel. The current draft solicitation contains no special pricing requirements for principal subcontractors.

Full Documentation of Proposed Pay

The RFP requires extensive pay rate information for all proposed positions (for both prime and subs) including: Collective Bargaining Agreements (CBAs), Area Wage Determinations (AWDs), the most current Defense Contract Audit Agency (DCAA) Provisional Billing Rate Approval Letter, DCAA Final Billing Rate Approval Letter, and/or DCAA Forward Pricing Rate Agreement recommendation. Offerors must also provide a payroll verification form containing the title and direct labor rates, accompanied by a signed certification by an authorized representative of the company that the information contained in the form is correct. Rates for contingent hires require offer letters with salary information (with associated signed Letters of Intent). For non-key prospective hires and consultants, other substantiating information and consultant agreements substantiating the rates proposed are required. Finally, a submission of a total compensation plan is also required.

The RFP identified (7) of 21 labor categories as SCA covered. However, NAVAIR did not provide the current SCA wage determination letter(s) in the draft. Interestingly, there are (8) labor categories identified as key, of which, (2) (Electrical & Electronics Engineering Technician III and Engineering Technician VI) are identified as being both Key Person and SCA covered. The draft SOW contains labor category details including functions, Bureau of Labor Statistics Occupation Code Mapping, Key/No-Key annotation, Experience, and Education. The RFP does not specify whether any of the current incumbent staff are operating under a CBA.

To BOE or not BOE?

Part B, Section 3.3.1 instructs offerors to, “ Demonstrate that the unit prices and the total proposed price/cost are reasonable, realistic, and commensurate with the work required by the solicitation and the technical and management approaches identified in the Technical Volume of the proposal. Show traceability with the CLINs, SubCLINs, PWS, proposed effort, proposed manning levels, and prices/costs .” This level of documentation is akin to a ‘Basis of Estimate’ and appears to be excessive given the fact that Section 3.6.2 instructs offerors to propose the RFP-provided labor categories and hours (Five-year total is 259,200 hours). Offerors should push back on this requirement and request the staffing approach be addressed fully in the technical volume.

Other Potential Pricing Issues

Fully Burdened Annual Labor Unit Cost

Section L, Part B, Section 3.3 advises that “ Offerors proposing a fully burdened annual labor cost for any employee that exceeds $300,000 shall provide rationale in their cost proposal narrative that justifies the reasonableness of the proposed cost for the applicable employee(s )”. Based on the solicitation’s standard of 1,920 hours per year, the associated burdened tripwire rate is $156.25 per hour. Given typical wraps and profit, annual salaries above $95,000 ($90,000 for subcontractors) could exceed this tripwire. Section M3.2 warns offerors that “ exceeded tripwire may ultimately be determined unreasonable absent justification ”. Offerors should clarify whether ‘fully burdened’, as used in the sentence above, includes or excludes fee/profit.

Limits on Pass-Through and Fee Rates

Fee for CPFF CLINs are capped at 8.0%. This limitation is applicable to both the prime and subcontractors. Subcontractor profit rate must also not exceed the prime’s profit rate. ‘Pass-Through’ rate on subcontract costs are limited to 8.0%. Offerors with large G&A rates should either consider proposing a separate subcontract handling indirect pool (along with a revised G&A rate) or a capped G&A rate applied to subcontractor costs. In most cases, subcontract handling rates fall well below 8%, which means companies that adopt a separate sub-contract handling fee will likely fully recoup their indirect costs. Offerors should clarify whether ‘pass-through rate’ is inclusive or exclusive of prime contractor profit on subcontractor cost. Section M also forewarns offerors that if there are discrepancies in rates between Section B, Attachment (P6), and Volume 3 Narrative, Section B prevails.

Unallowable Costs

Section 3.1.5 of the SOW states, “ The costs of general purpose business expenses required for the conduct of the Contractor’s normal business operations are not an allowable direct cost in the performance of this contract. General purpose business expenses include, but are not limited to, the cost for items such as telephones and telephone charges, reproduction machines, word processing equipment, personal computers and other office equipment and office supplies .” It's sensible and appropriate for NAVAIR to disallow direct charge of corporate ‘desktop’ costs since staff will sit on-site at NAVAIR and will be provided with office space, computers, and phones, etc (as specified in 3.1.2.1). However, we still think the basic language of this clause is overly broad and recommend offerors request tighter language such as the language provided in NAVAIR’s example or as specified within Section 3.1.2.1 of the SOW.

Total Evaluated Price – Option Extension

Section M4.0 states total evaluated cost/price will also include the six month performance period permitted under the clause. It will be calculated by dividing the final proposed contract year by twelve (12) to establish an estimated monthly amount; thereafter, the monthly amount will be multiplied by six to establish the estimated cost for the six (6) month option to extend services. Companies should figure this additional 6-month option extension into their pricing strategy.

Unpriced Transition?

Part B, Section 1.3 instructs offerors to address their Management and Transition Plan and notifies offerors that a written transition plan must be provided within 30 days of contract award. The current draft does not appear to request offerors to price their transition. It is also unclear whether a separate Transition Out CLIN will be established whose period of performance precedes the main contract CLINs. Offerors should confirm whether or not the plug labor specified in the RFP is inclusive of “Transition Out” activities.

Potential Costs

It’s also unclear what NAVAIR intends to do with the following instruction found in Section 3.5: “ The Offeror shall identify additional costs that would be incurred that have not been identified in the solicitation and describe in detail the performance that would cause these costs. Also, describe any assumptions with regard to Government actions (e.g., providing resources whether it be equipment or people) that enabled the proposed price/cost to be lower and identify the amount by which it is lower .”

We are also concerned with language found in Section M regarding additional Government costs applied to probable cost- “ In addition, adjustments to the cost portion of the offer may be made to include Government costs required to accomplish the Offeror’s proposed approach (e.g., additional Government-Furnished Property/Government-Furnished Information required by the Offeror to implement its approach) with the exception of those costs to the Government that are equal to all Offerors .”

We urge caution, especially with respect to identifying ODC costs that are represented as additional costs. NAVAIR’s instructions do not contain any additional scoping details and assumptions for their ODC plug figures.

No Exceptions (Well, Maybe)

Section 3.6.1 instructs offerors to propose the RFP-provided separate annual ODC plug figures for Travel and Material that totals $20.7M. The plug is considered an unburdened costs and offerors can elect price their offer with or without their applicable burden. However, the RFP advises, “ If the Offeror chooses not to burden ODCs, then the Offeror shall propose an H-clause to identify this special term and condition .” We’re not sure how this language squares with Section L.1 which warns offerors, “ The Government advises the Offeror that taking exception or deviating from any term or condition of the RFP may result in the assessment of a deficiency to the proposal .” Companies should exercise caution and seek clarification from NAVAIR regarding whether adding a Section H clause would be construed as ‘taking exception’ from the RFP that might result in a deficiency.

Conclusion

We think there’s some rough seas ahead for building the pricing volume until NAVAIR addresses some of some conflicting issues and clarifies scope of transition costs. This appears to be another ‘rate-drill’ type of solicitation with detailed backup required for all direct and indirect rates proposed.

DISA DEOS Pricing Synopsis

Thu, 10 May 2018 00:00:00 GMT

Summary

DISA should hit ‘Ctrl-Alt-Delete’ on this $8.2B IDIQ draft solicitation for cloud service offering and reboot. This amended draft still contains some substantial holes and conflicting signals on streamlined pricing requirements.

Background

The Defense Enterprise Office Solutions (DEOS) is an $8.2B IDIQ contract for integrated enterprise cloud service offering (CSO) for common communication, collaboration, and productivity capabilities serving approximately 3.15 million DoD consumers across three enterprise environments: “NIPRNet”, “SIPRNet”, and Denied, Disconnected, Intermittent, and Limited Bandwidth (D-DIL). The contract contemplates core based services including: Messaging, Office Productivity, Content Management, and Collaboration across four user types: Economy User , Basic User , Business User , and Enterprise User .

Source Selection Snapshot

The acquisition is a Full & Open competition with a single contract award using a best value 2-step source selection process. Evaluation factors include, Technical Approach Factor, Price Factor, and Past Performance Factor. The factors above are listed in descending order of importance. All evaluation factors other than cost/price, when combined, are significantly more important than cost or price. Our estimated scoring puts Technical Approach at 50%, Cost/Price at 30%, and Past Performance at 20%. The Total Evaluated Price (TEP) will consist of the contractor’s proposed price for the base period plus all option periods, to include pricing for the additional 6-month period. While cost realism is not appropriate since a fixed price contract is contemplated, importantly, no price realism is contemplated either. DISA makes no statement to indicate that price realism will be performed. Offerors should pay attention to this when structuring their pricing.

Currently, there is no task order award accompanying the IDIQ contract award. The SOO states the anticipated initial task order issued against this ID/IQ could potentially include the current 1.8 million legacy United States territories and possession NIPRNet DEE user population.

Pricing Requirements

The draft RFP requests a 30 page maximum pricing volume consisting of: Tab (A) Price Narrative (10 pages), Tab (B) - Price Information and Supporting Data (10 pages), and Tab(C) - Other Information (10 pages). The Excel pricing template (Attachment 6) is organized by CLIN/SLIN and SOO task and requests unit prices, quantities, and extended price. The pricing file is segregated between the 5-year base period and the 5-year option period. However, as we discuss below, the pricing instructions do not appear to align with the information requested in the Excel pricing model.

Pricing Issues

There are some noteworthy pricing issues discussed below including:

(Un) Streamlined Pricing Volume
No Meaningful Pricing Parameters Provided
CLIN Confusion
Conflicting Time Periods
Plugged Up Plugs
Odd Small Business Goals

(Un) Streamlined Pricing Volume

The RFP’s documentation and pricing detail requirements seem to conflict with the intent to streamline pricing. DISA invoked FAR Part 12 for pricing this contract (See L.5.4.2). In theory, this should mean that pricing data from bidders is sufficient for DISA to establish reasonableness of contract line item pricing from market comparisons of prices or from direct comparison of all offeror proposed prices. However, the RFP goes on to state, “ Each Offeror’s Cost Submission must describe and price all resources required to accomplish its proposed technical and management solutions to the Government’s requirements. This cost or pricing data shall be submitted as described in Table 15-2 of FAR Part 15.408. Cost or Pricing Data submitted must be sufficient to support the total price for each CLIN, providing details at the sub-CLIN level in conformance with a Work Breakdown Structure to Level 3 .” In another section the RFP states, “ The Government is providing a detailed statement and description of requirements and expects Offerors to describe in detail the specific resource requirements including labor, materials, and specialized items unique to their approach to fulfilling every aspect of the Government’s requirements. ” This language, along with Table 15-2 requirement, represents a cost breakdown of proposed price, not merely a breakdown of price by CLIN.

These requirements for cost information and documentation are contrary to the spirit of both commercial pricing and of a streamlined pricing volume. If this sort of cost detail is required, it also begs the question of commerciality of DEOS. Offerors should push back hard on DISA to clarify whether this is truly a FAR Part 12 pricing drill or if it’s really a full blown FAR Part 15 acquisition requiring data other than certified cost and pricing data. Finally, if a WBS is really required, we believe DISA should be on the hook to provide a Level 3 WBS to ensure some level of comparability between offerors.

No Meaningful Pricing Parameters Provided

The RFP instructs offerors to develop a Firm Fixed Price proposal “ to meet the requirements as detailed in the Defense Enterprise Office Solutions (DEOS) SOO, and in accordance with the detailed listing of non-developmental requirements provided in the DEOS Functional Requirement Document (FRD) .” However, the combined SOO, FRD, and PWS sorely lack any significant scoping, scaling, and quality of service information necessary for offerors to fully develop a firm fixed price. The draft RFP makes no references to bidder library resources that would surely be necessary for bidders to competently, comprehensively, and confidently develop their firm fixed pricing. Large incumbent insiders already doing business with DISA will clearly have an information advantage here that can be leveraged to scope the contract pricing. ‘Outsiders’ should complain.

CLIN Confusion

The CLINs identified in Section B of the solicitation do not align with the CLIN structure provided in Attachment 6 pricing template. Section B identifies (6) CLINs loosely align by DISA environment (NIPR, SIPR, D-DIL) and location (CONUS vs. OCONUS), along with (2) CLINs for ODC and Travel CLINs for a total of 8 CLINs per contracting period. The Excel pricing template identifies 14 CLINs which 3 environments, (8) functional areas, (2) CLINs for travel and ODCs, and an add’l CLIN for the 6-month option. The pricing template appears to contain the more accurate and up to date contract line item detail. However, offerors should confirm with DISA which CLIN structure is appropriate.

We also note that Section B also refers to fixed price labor rates which DISA intends to use as ceiling rates for the IDIQ contract. However, the RFP contains no instructions or guidance to offerors on providing fixed price ceiling labor rates. Offerors should seek clarification.

Conflicting Time Periods

The RFP instructs offerors to submit pricing by Contract Year (CY) for a Five Year Base Period and a one (5)-Year Option Period, including option pricing for an additional 6-month period that may be authorized IAW FAR 52.217-8. Yet DISA’s Excel pricing template requests offerors to provide their pricing over the entire base period (5 years) as a single period. The same appears to be true for the Option period. Offerors should request DISA clarify whether the template can be revised to break out pricing by contract year.

Plugged Up Plugs

The draft RFP instructs offerors to use plug figures for Travel and ODCs. However, it’s unclear if the plugs represent annual figures or if they represent a total value covering multiple years. The Excel pricing Exhibit seems to imply these plugs represent multiple years. We’re also not sure why DISA chose to include the following requirement, “ Any proposed ODCs shall be annotated in detail (e.g., quantity, description, etc. as applicable) and include supporting documentation to justify the proposed cost (e.g., vendor quotes, price history, etc.). ” Since plugs are mandated, detailed documentation is unnecessary. Offerors should request relief from this documentation requirement.

Odd Small Business Goal

The RFP states, a small business subcontracting goal 13% of the total value of subcontracts based on the offeror’s proposed pricing for the period of performance . So, the small business goal is tied to the prime’s overall subcontract strategy. Heavy use of subcontractors would result in a more significant SB subcontract goal. Conversely, a “prime heavy” solution would result in small business subcontracting targets that are significantly less than overall federal goals. For example, if the prime subcontracts out only 10% of the work, then the small business goal for that prime would be 13% x 10% = 1.3%. Is this what DISA really intended?

Conclusion

There are some significant pricing bugs in the current DEOS draft RFP. We think DISA should hit ‘Ctrl-Alt-Delete’ on this solicitation for cloud-based services and reboot the pricing requirements.

DoT EITSS Pricing Synopsis

Tue, 27 Mar 2018 00:00:00 GMT

Summary

We think this $600M IDIQ draft solicitation for shared IT services came out of the oven a bit early and is under-cooked. The draft contains many unresolved pricing issues and conflicting pricing requirements.

Background

The Department of Transportation Enterprise Information Technology Shared Services (EITSS) is a seven-year follow-on to the existing Common Operating Environment- IT Services Support (COE-IT) contract. The incumbent contract is held by ActioNet, Inc. under IDIQ contract # DTOS5909D00467 and runs through September 30, 2019. Currently, COE-IT has cumulative funding obligations of about $439M, including options, out of a total estimated ceiling of $500M. EITSS was advertised as a $600M Full & Open competition with a 25% small business set-aside. DoT has neither confirmed or clarified this acquisition strategy in their draft RFP.

The draft RFP includes three task order performance work statements:

• Program Management & Integration Support (PM/IS) (Attachment J-1)

• End User Support (Attachment J-2)

• Infrastructure Operations (Attachment J-3)

Ordering Period and Task Order Period

The IDIQ ordering period totals 7.5 years reflecting a 24-month base period and (5) 12-month option periods and a 6-month extension period. Task Order length cannot exceed 7.5 years, meaning offerors should take a 15-year view to their pricing strategy. Curiously, the current pricing template is aligned to the 7-year IDIQ ordering period and does not address the extended task order performance period. This could be important if IDIQ ceiling rates are required. We recommend offerors prepare for the longer-term view when considering ceiling rates.

What’s the Real IDIQ Ceiling?

The draft identifies a $7M ceiling (in two separate sections). DoT’s Q&A indicated a $600M IDIQ ceiling. We realize the draft reflects an obvious blunder. However, we’re not sure a $600M ceiling is sufficient if EITSS is also intended to replace FITSS and RSIMSS contracts (as was confirmed in the Q&A).

What's the Acquisition Strategy?

Previous Q&A documents stated the contract would be awarded under full & open competition with 25% small business set-aside. The draft pricing template (Attachment J.37) and Section L, imply that DoT intends to set aside the End User Support task order for small business offerors while large businesses will compete for PM/IS and Infrastructure Operations. However, DoT has not explicitly stated that intent. Furthermore, there is no comment on the contemplated number of IDIQ contracts DoT will award.

Will the Real Pricing Volume Please Stand Up?

We counted four separate pricing instructions

L.15 Price/Business Proposal
L.16 Cost/Business Proposal
L.17 Firm Fixed Price CLINs
L.17.1 Time and Material Labor CLINs

The instructions at L.15 do not provide any specific instructions about submission of cost or pricing information. The title implies submission of a price proposal. L.16 requires offerors to provide a complete breakdown by cost element (material, labor, indirect, etc.) – a cost proposal. However, the J.37 pricing template only requests fully burdened labor rates. Section L.17 address fixed price CLINs. However, neither instructions nor the pricing template identify the PWS portions that are fixed price. Section L.17.1 instructs offerors “ to make an independent assessment of the resources required to perform the tasks described in the PWS (Attachment J-1, J2 and J3). Offerors should use their own judgment based on their experience and approach to complete this project. Propose the price appropriate for the requirement... ” However, the pricing attachment identified 100 FTE per year for End User Support and 50 FTE per year for PM/IS (no information on Infrastructure Ops). We have two important questions here:

1. Are offerors required to use the LOE as stated in the pricing template or are they permitted to adjust LOE according to their technical approach?

2. Will the LOE plugs drive total evaluated price? Section M is silent on total evaluated price and only states, “ The Government will evaluate offers by considering rates presented for the seven-year base period and the additional six-month period that may be authorized IAW FAR 52.217-8… The total proposed price will consist of the Contractor’s proposed rates for the five-year base period and the option pricing for the additional six-month period. ” We interpret this language to potentially mean that DoT will apply the Offeror’s fully burdened labor rates to the LOE plug figures shown in the pricing template to arrive at a Total Evaluated price. Offerors should aggressively seek clarification on exactly how DoT intends to evaluate prices.

Conflicting Pricing Signals

Attachment J.37 pricing template contains a transition pricing table and three task order pricing tables (End User, PM/IS, and Infrastructure Ops). It also provides 111 labor category descriptions. However, not all 111 categories are utilized in the pricing template and at least one labor category is missing – Asset Manager – Senior.

Importantly, section B.3 states the services specified in the IDIQ have been determined to be commercial. Yet, the pricing requirements (and associated documentation) seem to contradict this determination. The previous COE-IT solicitation requested commercial type pricing by functional area. Each functional area was priced per seat, per account, per gigabyte, etc.

For EITSS, fully burdened labor rates are requested by labor category and task area. The template requests both on-site and off-site labor rates. J.37 also contains this curious language, “ The DOT fully expects that the contractor will mirror the current staff currently in place today on Day 1 of the contract. The SEC fully expects the contractor to work with the SEC to transition the staffing and delivery model over time to a Firm Fixed Price (FPP) contract that lower the staff count and to gain operating and cost efficiencies. The rates provided by Offeror will be used to assess the Day 1 staffing model. ” We’re left wondering whether this is a commercial type contract with Service Level Agreement type pricing objectives or a staff-augmentation type contract with incumbent pay and retention objectives.

To Escalate or Not?

The pricing attachment instructs offerors to propose rates for the base period. For option period, the template implies an automatic escalation is applied based on the US Department of Labor’s Bureau of Labor Statistics’ Employment Cost Index (ECI) for Civilian Labor (DOL ECI – Civilian Labor) of the previous year. However, the Section L instructions request offerors to propose and fully justify their proposed labor escalation rates.

Subcontracts/Consultants

The draft RFP does not require submission of separate subcontractor rates or budgets. However, the draft RFP requires primes to provide:

• A Negotiation Memorandum which includes documenting the extent to which adequate price competition was obtained, or justification in its absence AND a cost reasonableness analysis on all its proposed Subcontractors and Consultants in accordance with FAR 15.404-3

• A cost proposal (our emphasis) inclusive of any supporting documentation needed to substantiate proposed rates, hours, and overall costs.

• Subcontract Checklist (completed by subcontractor)

From our own experience as government consultant evaluators, we sympathize with the Government’s intention to push down subcontractor pricing reasonableness determinations back to the prime where it belongs. In many cases, the Government expends too much time doing the prime’s homework. Given the size of this IDIQ contract, we expect primes will include many subcontractor teammates and therefore primes should budget sufficient time to comply with these subcontract pricing terms.

IDIQ Labor Rate Ceilings?

Section B references Federal Supply Schedule Rates (with discounts) will be incorporated into the IDIQ contract. There is no other mention of Federal Supply Schedule in the draft RFP. It is unclear whether offerors are supposed to bid from their Supply Schedule or whether they are permitted to proposed custom burdened rates tailored to this contract vehicle. We’re also unsure how this requirement squares with the other parts of the RFP which stated that escalation would be automatically applied since supply schedules cover more than one year (typically) and already have escalation built in.

Partial or Full PWS Compliance?

We found the following section M statement odd and recommend offerors seek clarification, “ Offerors are required to address all the evaluation factors, but they are not required to propose to the entire PWS ”. With regards to pricing, we believe the DoT wants offerors to price the entire PWS (by applicable task order). The quoted statement would seem to imply that offerors could price something less than the complete PWS.

Key Pricing Questions to Resolve

Based on our 1st read of the Draft RFP, we suggest offerors resolve the following questions:

1. What is the acquisition strategy? Is the PM/IS task order reserved for small business? How many large and small IDIQ contracts are contemplated?

2. Is this a commercial acquisition and if so, why aren’t the instructions and pricing templates aligned accordingly to commercial pricing?

3. What is the total evaluated price? Will the labor plug figures be applied to proposed labor rates OR is evaluated price based on the as-proposed resources budgeted by each offeror?

4. Are offerors required to use their Federal Supply Schedule rates as the basis for fully burdened labor rates and are they permitted to augment their schedule with newly proposed labor categories to cover any gaps?

5. Which task orders should a large offeror address? Are offerors required to address the entire PWS or can they tailor their scope?

6. Does the scope of the (3) task order PWS include scope from legacy FITSS and RSIMSS contracts?

This is our brief review of issues we uncovered. There are many other bugs in the document. For example, we found this conflicting guidance in Section L.13, “ Large Business Technical proposals covering Infrastructure and End User shall exceed 105 pages. All pages exceeding 105 will not read. Small Business Proposals shall exceed 55 pages. All pages exceeding 55 will not be read .” Offerors should carefully review this draft and provide thorough comments and questions to DoT.

About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a firm focused on providing expert contracts pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. You can find more resources like this article at https://www.federalpricinggroup.com/ .

NASA ACITS4 Draft RFP Pricing Synopsis

Thu, 08 Mar 2018 00:00:00 GMT

Summary

While not advertised as an LPTA competition, this 157 FTE/year 8(a) set-aside contract for consolidation of IT services at Ames Research Center looks like a rate shootout for the largest and savviest 8(a) firms.

Background

NASA Ames Research Center Consolidated Information Technology Services (ACITS) 4 is a five-year follow-on contract to the existing ACITS3 contract. The incumbent contract is held by ASRC Research and Technology Solutions (ARTS) under contract # NNA13AB88C and runs through August 31, 2018. Currently ACITS3 has cumulative funding obligations of about $164M. ACITS4 is an 8(a) set-aside with a $27.5M size standard under NAICS code 541512. This single award contract consists of a Firm Fixed Price (FFP) Phase-in; Cost Plus Fixed Fee (CPFF) Contract Management and Technical Requirements (“Core Technical Services”); and a CPFF IDIQ Contract Task Orders.

Cost and Pricing Requirements

Offerors must submit both a cost volume and an Excel pricing model containing 16 different spreadsheet tabs. Certified cost and pricing data are not required. However, very thorough and detailed information must be provided in the cost volume including:

Detailed explanation of all pricing estimating methodologies
Disclosure of the basis for all projections, rates, ratios, percentages, factors
A narrative portion that explains all judgment-based elements of cost/price projections and profit policies including any proposed price ceilings and team fee sharing arrangements.

Labor Rates and Compensation

The draft solicitation identifies 42 standard labor categories (SLCs) for the ARC Core and Technical Services IDIQ portions of the contract. SLCs were not provided for Contract Management portion, leaving offerors to propose their own labor categories. Offerors must submit a Total Compensation Plan. Curiously, this information is requested in the Mission Suitability Volume, not in the Cost Volume.

Offerors should pay close attention to identifying the basis of their proposed labor rates and well as indicating whether a position is filled by incumbent staff or new hires. NASA has not provided any data on incumbent salaries. NASA’s example seems to imply that offerors either bid incumbent or new hire. The larger labor categories such as Application/SW Developer may require a blend of incumbents and new hires.

NASA provided their guidance on escalation rates from 2019-2024 ranging from 2.9% to 3.0% (it begs the question why they didn’t decide on one or the other). These rates are guidance and offerors are not required to bid these escalation rates.

Labor Effort

Offerors must use the NASA provided labor plugs totaling 257,401 hours (or 139.9 FTE) for Core Technical Services and 36,186 hours (or 19.25 FTE) IDIQ Task Orders. No labor plugs were provided for contracts management portion.

The draft RFP defines ‘productive time’ “the total available hours for productive work in a year, excluding overtime and paid time off (vacation, holiday, etc.).” Perhaps NASA wants to level the playing field by removal of uncompensated overtime. Separately, NASA wants to understand ‘non-productive’ time which is stated as ‘paid hours for non-work time such as vacation, holidays, sick leave, and other personal leave’. Absent from either of these definitions are hours associated with indirect labor and uncompensated overtime (even though offerors are required to address uncompensated overtime in their Total Compensation Plans). The accounting for indirect time might be an issue for offeror’s senior staff, key personnel and for smaller subcontractors whose principals typically straddle direct and indirect work.

Other Direct Costs

Offerors must include the NASA provided ODC plug figures totaling $96.2 M across the three contract portions (Contract Management, Core Technical, and IDIQ Task Order). The plugs are not provided in the RFP document, but were shown in the Excel template.

Indirect Costs

Offerors must use Exhibit 10 to map their indirect rates from their accounting year and then compute a weighted average indirect rate. Offerors proposing different indirect rates by year should pay attention to this tab. These weighted rates should be linked to the pricing buildup in Exhibits 2, 3, and 4 in the pricing model.

In Exhibits 11 and 12, Offerors must also provide full details on the composition of each indirect rate pool, including indirect pool cost elements and the total value of the cost base. In theory, the rates shown in Exhibit 11 should tie to and feed rates in Exhibit 10. This detail is designed to ensure NASA can discern whether offerors proposed credible and realistic indirect rates. The RFP is silent on whether offerors must use current negotiated rates. Primes should be careful to ensure that their subcontractors fully understand these requirements since the draft RFP presumes (in our opinion) a CPFF type subcontract will be flowed down to major subcontractors.

NASA also foresees offerors will bid ‘impacted indirect rates’. Exhibit 12 provided a breakout of G&A base dollars into three buckets entitled: ‘Existing Business Base’, ‘This Contract’, and ‘Forecasted Business Base’. This breakout was not found in the Exhibit 11 tab for the Fringe and Overhead pools. Presumably, offerors with a single overhead pool could also experience a significant beneficial impact on their overhead rate should they win this bid and should clarify with NASA whether they can provide this detail in Exhibit 11.

Subcontractors

Proposed subcontractor budgets that exceed a five-year total of $2M are considered ‘major subcontractors’. Major subs must also submit a cost proposal in the same format as the prime. Subs may submit sanitized bids to primes and unsanitized bids directly to NASA (of course this complicates management of the proposal pricing for both the prime and the subs). This seems like a low threshold for requested detailed pricing information and will increase both time and effort for prime bidders with many smaller subcontractors.

Cost Realism and Total Evaluated Cost

NASA will perform cost realism analysis. Additionally, the draft RFP states, “Cost information supporting a cost judged to be unrealistic and the technical/management risk associated with the proposal will be quantified by the Government evaluators and included in the assessment for each Offeror.” We’re not sure we understand what this statement means. It’s possible NASA intends to summarize the information provided by offerors whose cost element was deemed unrealistic. We suggest offerors request NASA to clarify the intent of this statement.

Evaluated price is defined as “The overall value for selection purposes will be the sum of the cost plus Fixed fee proposed for the ACITS4 Contract Management (CLINs 0002, 0005, 0008, 001 l, 0014), the ACITS4 Core Technical Services (CLINs 0003, 00006, 00009, 0012, 0015), and ACITS4 IDIQ Task Orders (CLINs 0004, 0007, 0010, 0013, 0016). Phase-in (CLIN 0001) will not be included in the evaluated total cost for selection purposes, but it will be evaluated for reasonableness and realism.” This removes the incumbent’s price advantage and somewhat levels the playing field. So, bidding “zero” for Phase-In price doesn’t improve the non-incumbent’s pricing competitiveness.

Summary

While not an LPTA type contract, the draft solicitation fixes ODCs and most of the proposed labor effort. Therefore, differences in pricing will be limited to differences in salaries, indirect rates, and proposed fee. The pricing requirements while lengthy, are not overly complex, since NASA has fixed both labor level of effort and ODCs. Primes should carefully consider their indirect rate strategy along with closely monitoring and managing their subcontractors. Smaller, less mature subs may have a more difficult time accommodating NASA’s requirement for detailed indirect rate data. Primes should carefully consider which teammates are considered ‘major subcontractors’ for this bid.

Finally, we think offerors should take the hint from NASA that the era of bidding one percent or less for labor escalation is probably over. Recent wage trends [1] across all workers, as shown in the Employment Cost Index, is now firmly above 2.5 percent and is approaching 3 percent wage growth for professional scientific, and technical services.

[1] Bureau of Labor Statistics, Table 9 WAGES AND SALARIES (NOT SEASONALLY ADJUSTED): Employment Cost Index for wages and salaries, for private industry workers, by occupational group and industry

About the author: Mike Gallo is Partner and Principal Consultant at Federal Pricing Group, a firm focused on providing expert contracts pricing to small and mid-sized federal government contractors and cost-related acquisition support services to federal agencies. You can find more resources like this article at https://www.federalpricinggroup.com/ .