Cost Estimating System Requirements
DoD policy is that all contractors have acceptable estimating systems that consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices
215.407-5 Estimating systems Characteristics of an acceptable estimating system An acceptable system should provide for the use of appropriate source data utilize sound estimating techniques and good judgment maintain a consistent approach adhere to established policies and procedures.
Evaluation Criteria
Establishes clear responsibility for preparation, review, and approval of cost estimates; Provides a written description of the organization and duties of the personnel responsible for preparing, reviewing, and approving cost estimates; Assures that relevant personnel have sufficient training, experience, and guidance to perform estimating tasks in accordance with the contractor's established procedures; Identifies the sources of data and the estimating methods and rationale used in developing cost estimates; Provides for appropriate supervision throughout the estimating process; Provides for consistent application of estimating techniques; Provides for detection and timely correction of errors; Protects against cost duplication and omissions; Provides for the use of historical experience, including historical vendor pricing information, where appropriate; Requires use of appropriate analytical methods; Integrates information available from other management systems, where appropriate; Requires management review including verification that the company's estimating policies, procedures, and practices comply with this regulation; Provides for internal review of and accountability for the acceptability of the estimating system, including the comparison of projected results to actual results and an analysis of any differences; Provides procedures to update cost estimates in a timely manner throughout the negotiation process; and Addresses responsibility for review and analysis of the reasonableness of subcontract prices.
Indicators of potentially significant estimating deficiencies
The following examples indicate conditions that may produce or lead to significant estimating deficiencies— “Red Flags”
Not using historical actuals (if appropriate); Failure to analyze material costs , failure to perform subcontractor cost reviews as required; Consistent absence of analytical support Excessive reliance on individual personal judgment where historical experience or commonly utilized standards are available; Not integrating other functions into the process where doing so would improve the reliability of the estimate Failure to provide established policies, procedures, and practices
Impact of estimating system deficiencies on specific proposals
Field pricing teams will discuss identified estimating system deficiencies and their impact in all reports on contractor proposals until the deficiencies are resolved. The contracting officer responsible for negotiation of a proposal generated by an estimating system with an identified deficiency shall evaluate whether the deficiency impacts the negotiations. If it does not, the contracting officer should proceed with negotiations. If it does, the contracting officer should consider other alternatives, e.g.— Allowing the contractor additional time to correct the estimating system deficiency and submit a corrected proposal; Considering another type of contract, e.g., FPIF instead of FFP; Using additional cost analysis techniques to determine the reasonableness of the cost elements affected by the system's deficiency; Segregating the questionable areas as a cost reimbursable line item; Reducing the negotiation objective for profit or fee; or Including a contract (reopener) clause that provides for adjustment of the contract amount after award.
