Cost Estimating Standards

1. INTRODUCTION

The Department of Defense FAR Supplement (DFARS) Part 215.407-5 and Clause 252.215-7002 established DoD Policy that requires all contractors to have an acceptable Estimating System that consistently produces well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices, are consistently and integrated with the contractor’s related management systems, and are subject to applicable financial control systems. GovC is subject to estimating system disclosure, maintenance, and review requirements. GovC is also subject to periodic review of its Estimating Systems by the Defense Contract Audit Agency (DCAA) under FAR 15.407-5 Estimating Systems and subsequent approval by the Administrative Contracting Officer. As such, this manual is intended to set standards and principles to be used in pricing proposals for GovC. This document serves as the basis for all GovC’s Estimating Systems. It applies to all proposals, but especially to all United States Government procurements. It is not intended to be a one size fits all document, but to prescribe procedures and methodologies employed in GovC’s estimating process. As each Division, Business Units have differing products and services, it would be impractical to capture all of the different methodologies employed into one document. As such, again, this document sets overall guidelines which must be adhered to at the Division and Business Unit level.

In general, an acceptable system should provide for the use of appropriate source data, utilize sound estimating techniques and good judgement, maintain a consistent approach, and adhere to established Policies and Procedures. The following information, establishes the corporate framework and guidance for pricing and estimating to achieve these objectives.

2. GENERAL INSTRUCTIONS All divisions should prepare proposals within the standards in this document to ensure all proposals submitted to the United States Government, or State and Local governments fully comply with procurement regulations, and are consistent, accurate, and auditable.

3. ETHICS Part of a sound Estimating System is to ensure the individuals involved in the estimating and pricing process understand that all actions by those individuals must be fair, and ethical. GovC does not allow for unethical behaviour in fact or appearance.

GovC employees should be impartial, and avoid favouritism, in all actions to include the pricing and estimating of proposals and/or the procurement of products and services.

All GovC employees performing estimating or pricing actions must ensure that they understand and adhere to the following Policies:

• Conflicts of Interest • Standards of Business Conduct • Anti-Fraud Policy • Confidentiality Policy

4. ORGANIZATIONAL STRUCTURE 4.1. Duties and Responsibilities

Duties and Responsibilities should be established at each functional level so that there is accountability for the accuracy, consistency, and auditability of each proposal submitted. Functional areas should include: • General Manager, President, or Vice President • Proposal Manager • Proposal Personnel o Estimator/Pricer o Proposal Specialist o Purchaser • Project/Program Manager • Technical Specialist

5. RELATED POLICIES AND PROCEDURES

In addition to the Ethics Polices stated above, Policies and Procedures related to Estimating and the submittal of Proposals are: • Authority Matrix • Cost Estimating and Proposal Pricing (Procurement) • Export Compliance Policy • Truth in Negotiations Act (TINA) Policy • USG Contracting Mandatory Disclosure and Internal Control Policy • Procurement Integrity

6. ESTIMATES AND CONTROL PROCEDURES 6.1. General All individuals involved in the estimating and submittal of proposals shall be familiar with FAR 15. FAR 15 is broken down into the following subparts:

• Subpart 15.2 Solicitation and Receipt of Proposals • Subpart 15.3 Source Selection • Subpart 15.4 Contract Pricing • Subpart 15.5 Preaward, Award, and Postaward Notifications, Protests, and Mistakes • Subpart 15.6 Unsolicited Proposals

Familiarity and understanding these regulations will ensure that individuals are prepared and capable of submitting quality proposals that are consistent, accurate, and auditable.

6.2. Quality Control and Review Quality control and review is necessary to ensure the consistency and accuracy of proposals submitted by GovC. Quality Controls and reviews should be established as standard operation procedure, and documented. The procedures should be routine and include:

• Verification of Estimates o Verification of all Elements of Cost  Direct Costs  Indirect Costs (Current year and outyears)  Escalation Factors o Verification of accuracy of Estimating calculations o Verification of consistent methodologies utilized in estimating o Verification that all data is current

• Verification that all factual data is available and documented • Verification that the source of information is available • Verification that the requirements of the RFP have been met

6.3. Management Review and Approval A final management review should be established which requires signoff of the proposal. The final review should take place after the preparation and quality control and review has been completed. 6.4. Documentation and Proposal File During the life cycle of a Proposal or Bidding effort, from the compilation of the proposal, to the award or loss of award of a contract all relevant information needs to be captured and organized.

6.4.1. Proposal Log While there is no standard to apply to all entities within GovC, each entity to the extent practical should consider establishment of a Proposal Log. That log should include the RFP number, Proposal Log number, and individuals compiling or responsible for the proposal, submittal date, value, agency, type of contract, and any other relevant data. The proposal log should be established to facilitate location of person compiling or responsible for the proposal, status, and for other business purposes such as win/loss ratios, and risk assessment.

6.4.2. Proposal File Standard Proposal files need to be established at each Business Unit, or Group. The standard proposal file should have a checklist to ensure that all relevant documentation is captured, and something did not get missed. The necessity of a proposal file are:

• To organize the information so, anyone reviewing the data can easily understand the file, • In case the individual that prepared the proposal, is on vacation, is no longer employed by the company, or is otherwise unavailable to go over details of the file, • In case there is a governmental request (ie DCAA) for information, that information could be easily located, understood, and produced to the government

The file should be a consolidation of all information used in the compilation and communication of the proposal. It should contain: • Cover letter • All communications such as emails, or notes from conversations • Basis for estimates and methodology, such as: o Direct Labor o Materials, and ODC, and Travel o Subcontractors or Consultants Proposed o Indirect rates applied, and relevant documentation (Provisional Rates, Out-year rates) o Certifications and Representations

6.5. Proposal Retention

Proposals should be retained in accordance with GovC’s Document Retention Policy. Additionally, at a minimum they should be stored in the media in which they were submitted to the government. If they were submitted in hard copy (paper) format, a hard copy should be available. If they were submitted in electronic, then they would need to be retained electronically. In addition to retention requirement for the media in which the proposal was submitted, proposals submitted in hard copies should also retain any electronic data that was used in the printing of the hard copies.

6.6. Propriety/Company Confidential Data

GovC bid or proposal information is source selection information and pricing information which is vital to our business. As such, it should not be disclosed outside of government channels. Disclosure outside of government channels, to our competitors, could damage our ability to get new or additional work, as we may lose a competitive advantage.

GovC submissions should follow the adhere to FAR 52.215-1(e), which states, “Offerors that include in their proposals data that they do not want disclosed to the public for any purpose, or used by the Government for evaluation purposes, shall”-

(1) Mark the title page with the following legend: This proposal includes data that shall not be disclosed outside the Government and shall not be duplicated, used, or disclosed—in whole or in part—for any purpose other than to evaluate this proposal. If, however, a contract is awarded to this offeror as a result of—or in connection with—the submission of this data, the Government shall have the right to duplicate, use, or disclose the data to the extent provided in the resulting contract. This restriction does not limit the Government's right to use information contained in this data if it is obtained from another source without restriction. The data subject to this restriction are contained in sheets [insert numbers or other identification of sheets]; and (2) Mark each sheet of data it wishes to restrict with the following legend: Use or disclosure of data contained on this sheet is subject to the restriction on the title page of this proposal. Indication in a proposal that the information is restricted protects GovC interest, as it puts the government on notice to follow FAR 3.104-4, Disclosure, protection, and marking of contractor bid or proposal and source selection information. Additionally, all employee should understand and be aware of GovC’s confidentiality policy referenced in the Ethics Section of this document.

7. QUALIFICATIONS AND TRAINING GovC employees should be knowledgeable in the requirements for US Government Estimating and Pricing, and as such, employee sound methodologies in the preparation of proposals. They should also understand Standards of Business Conduct and Ethics as it relates to Estimating and Pricing. To ensure that employees are qualified to perform such actions, employees should have adequate qualifications and training. Divisions and Business units should establish minimum qualifications and training to be required of individuals involved in estimating and pricing activities.

8. PROPOSAL PROCESS AND BASIS OF ESTIMATE 8.1. Basis of Estimate

The Basis of Estimate (BOE) can contain many variables, in many different scenarios. GovC’s Cost Estimating Standards could not practically contain all the scenarios in bidding situations among GovC’s entities. As such, this section establishes standards that require that:

1. All estimates should have a reasonable basis, and 2. That basis should be fully documented, and available for audit

Basis of Estimates contain 3 fundamental elements. They are:

1. How much is required. This could be how many hours are required to perform the service or build the product, or it could be how much material is needed to build a product, and

2. How much does the material or labor costs? How much does one hour of labor costs, or one item or element of material, and

3. How much corporate or indirect expense is to be allocated to the direct costs.

These fundamental elements should have both a reasonable basis and should be fully documented.

9. ESTIMATES OF COST ELEMENTS 9.1. Types of Costs GovC Divisions and Business Units should have established and documented processes for estimating the various elements of costs. Per FAR 31.201(a), states:

“In ascertaining what constitutes a cost, any generally accepted method of determining or estimating costs that is equitable and is consistently applied may be used.

Estimated cost should be allowable, allocable, and reasonable.

The methodology and practices applied in bidding and estimating costs shall be consistent with the entities Cost Accounting methodology in accumulating and reporting costs. Consistency in the application of cost accounting practices and bidding practices ensures that comparable transactions are treated alike, both in the estimating and subsequent accumulation and reporting of costs. While many entities may not be CAS covered, this paragraph describes the fundamentals of Cost Accounting, and Cost Accounting Standard (CAS) 401. This standard needs to be adhered to, whether or not the entity is CAS covered.

There are 2 general groupings of cost. Indirect and Indirect costs. Indirect costs are costs which have more than one cost objective, unlike a direct cost which has one final cost objective. FAR 31.203 defines indirect costs as those cost that are to be allocated to intermediate or two or more final costs objectives.

9.1.1. Indirect Costs

Indirect costs are grouped into homogeneous pools, and allocated on a common base of that pool. Typical Indirect Cost Pool groupings are:

• Fringe, • Overhead, and • General and Administrative (G&A).

Indirect cost should be applied to direct cost, consistent with the allocation base that developed the indirect cost (ratio). Indirect costs should be approved by the government (termed approved provisional indirect rates) for the current year, and any outyears being bid.

9.1.2. Direct Costs Direct costs are costs which are to be charged directly to the contract. These costs shall be bid based on sound and reasonable estimates and business practices. Examples of direct cost are: • Labor • Materials • Other Direct Costs • Travel

The estimation of direct costs should be applied consistently, within established methodology.

10. CERTIFICATE OF CURRENT COST OR PRICING DATA The Truth in Negotiations (TINA) Act requires certified cost or pricing data in certain instances in accordance with FAR 15. GovC has a separate TINA Policy and TINA determination flowchart which should be reviewed and ensured that the current bid is in conformance with this policy.

11. GSA PRICING General Services Administration (GSA) pricing is established with Government Labor Categories. This is to ensure continuity amoung entities bidding on, and with GSA Schedules. As such, it is normal for entities to have different labor category titles than the government titles. In bidding GSA Schedules for labor, it is necessary to have a labor matrix that: 1. Maps the entities labor category to the GSA Labor category, and 2. A conformance document which demonstrates that the entities labor category meets the minimum requirements for the GSA labor category.

12. COMMERCIAL PRICING 12.1. Commercial Pricing

Commercial Pricing is for a non governmental entity to include the Federal Government and State and Local Governments. While the strict rules of Federal Government Contracting do not apply to Commercial Pricing, sound business dictates, that the fundamentals still be followed. Additionally, entities that have pricing available on the General Services Administration (GSA) Schedule and do commercial prices need to ensure that GSA rules are not being violated. GSA pricing should be the best value to lowest price to the government, and commercial pricing should not be lower.

13. REFERENCE FAR 15 Contracting by Negotiation Federal Acquisiton Regulation (FAR) DFARS • DFARS Section 215.407-5-70 provides more comprehensive guidance for establishing policies and procedures as they relate to the establishment of estimating systems for DoD contractors. Defense Contract Management Agency, Estimating System Review DCMA Estimating System Review Hyperlink Defense Contract Audit Agency Contract Audit Manual, Section 5-1200 Section 12 –Audit of Estimating System Internal Controls http://www.dcaa.mil/cam/Chapter_05_-_Audit_of_Accounting_and_Management_Systems.pdf Contract Audit Manual, Chapter 9 – Audit of Cost Estimates and Price Proposals http://www.dcaa.mil/cam/Chapter_09_-_Audit_of_Cost_Estimates_and_Price_Proposals.pdf