Cost Proposal Narrative

The following is a sample Cost Proposal Narrative, found in typical cost proposals submitted to the government or government prime or upper level subcontractors

1 Cost Proposal Introduction

This cost proposal presents our estimated costs in response to RFQ________________________. This volume includes [ Enter Contractors Name Here] total cost to provide the products/perform the services described in our Technical Proposal. The first page of this volume provides the total proposed cost, fee and total cost as required by the RFQ.

To help [ Customer] achieve its strategic objectives, [ Contractors Name] proposes to provide a team of knowledgeable professionals with unmatched qualifications and demonstrated expertise. Our ability to provide the best mix of professionals to meet your requirements is matched by our ability to deliver services in a cost-effective manner. We are submitting technical and cost proposals that provide the greatest value for work performed, while minimizing the total costs to the government for completing assigned tasks/delivering identified products. Our costs are realistic, and our ability to deliver work at our stated costs is demonstrated by our previous contract delivery/support efforts. Our cost is an important element in this total proposal.

1.1 Achieving Cost Realism

We propose realistic deliverable costs that reflect the right mix of professional skills needed to execute assignment orders effectively. We establish costs that are achievable, and we manage our work to complete assigned deliveries/tasks within contracted costs. Our historical record of contract performance supporting the Federal government provides evidence of our cost realism:

• We have achieved contract compliance exhibiting the highest standards of cost accountability in cost audits and in detailed reviews of our costs with various Contracting Officer’s Representatives (CORs).

• [Contractor] has consistently met all contract deliverable requirements for all of our customers contracts. Our record of delivery speaks for itself; we complete the job on schedule and within the limits of funding assigned/fixed contract price to the contract. We provide quality services/products at a fair price.

1.2 Ensuring the Cost-effectiveness of Our Work

It is important to recognize the cost effectiveness of our products/services. We have consistently delivered, and will continue to deliver, quality services and products on an economical basis. We understand the need to minimize the cost to our customers. We provide our services and products for less total cost.

Our cost-effective support is based upon our ability to minimize the level of effort required to complete assigned tasks. We require fewer hours and incur less cost in performing work, and you spend less time in obtaining the solutions you require. These benefits and savings occur throughout the contract period of performance, not just at the start of the contract. We achieve these savings by:

• Developing and applying proven technical approaches and performing credible analyses that are effective, achieve the results required, and provide direct benefits and cost savings to your programs;

• Applying structured methodologies and specialized models adapted to your requirements that automate data compilation and documentation tasks, enabling us to increase our analytical support while significantly reducing the number of hours required to support your programs;

• Integrating common efforts across multiple programs and organizations, eliminating redundant tasks and providing consistent and accurate information and analysis to support management’s requirements;

• Using our direct experience in working with all areas of the Federal Government to anticipate your requirements and provide responsive support, thereby eliminating start-up, learning, and training costs for each task; and

• Assigning the best mix of labor by assigning work among each labor category in the most cost-effective manner.

Our approach results in reduced time and effort required by our project team members and your technical managers in performing work. [Contractor] applies proven technical approaches and performs each task properly, providing you with cost savings and a total reduction in the cost of work performed throughout the contract period of performance.

1.3 Delivering the Greatest Value

We provide tangible returns for every contract dollar invested in us. We accomplish this by providing credible cost analyses, effective management approaches, and pertinent information to enable you to achieve maximum results. We intend to deliver our results to you with the best value for the Government and with fewer contract hours. You can achieve significant returns for each contract dollar invested with benefits and cost savings ultimately vesting with the EPA. 2 Cost Proposal Methodology

2.1 Overview

This just gives provides a high level overview of the specific requirements, and how those requirements are going to be met and lays out the cost proposal format and information presentation. Examples are:

• 1. Total Contract Summary Proposal

• 2. Total Base Period (Including Base and Optional Quantities)

• 3. Base Period, Base Quantity

• 4. Base Period, Optional Quantities

• 5. Total Option Period 1 (Including Base and Optional Quantities)

• 6. Option Period 1, Base Quantity

• 7. Option Period 1, Optional Quantities

• 8. Total Option Period 2 (Base Quantity Only)

or

• Schedule 1 - Cost Summary by Cost Element Consolidation Schedules

• Schedule 2 - Summary Costs by Cost Element by Item Number/CLIN

• Schedule 3 - Detail Cost by Cost Element by Item Number/CLIN

2.2 Assumptions, Practices, and Exceptions

[Contractor]discloses the following assumptions, practices, and exceptions:

• 1) period of performance,

• 2) proposed cost of service and indirect rates,

• 3) personnel compensation policies, and

• 4) work hours.

2.2.1 Period of Performance

[Contractor] used a period of performance beginning May 15, 2002, in this proposal:

Base Period: May 15, 2002 – May 14, 2004 (24 months total)

Option Period 1: May 15, 2004 – May 14, 2006 (24 months total)

Option Period 2: May 15, 2006 – May 14, 2007 (12 months total)

Escalation

In this proposal, we escalate our direct costs at 2.0% per year for out-years. We use the budgeted FY 2006 indirect cost rates for subsequent proposed years.

2.2.2 Personnel Compensation Policies

Contractors’s policy provides for a complete review of all salaries and subsequent adjustments and promotions yearly. This review is the culmination of our career planning and performance evaluation process that involves informal feedback and discussion, as well as required evaluations and reviews.

Salary increases are based predominately on performance, but are also affected by market forces and the economic well-being of our practice.

Contractor awards annual compensation increases effective July 1 and bonuses in August of each fiscal year. Benefits to employees include eight holidays, four to six weeks of personal days, depending on labor classifications, and other benefits including payroll taxes, health and life insurance, and pension.

2.2.3 Work Hours

Office hours are 8:30 a.m. to 5:30 p.m., Monday through Friday, with one hour per day for lunch. This translates into a 40-hour workweek. There is no overtime compensation for exempt employees. Any “uncompensated overtime” in actual practice reduces our overhead pools as appropriate. We do not propose “uncompensated overtime”. We do this without artificially lowering our direct labor rates based on uncompensated overtime. Other offerors may artificially lower their proposed costs per hour by requiring their personnel to work an extra number of hours per week, whether or not it is necessary. We believe this is not a cost-effective policy and does not provide a true comparison of cost.

2.3 Proposed Elements

The major elements of our proposal include 1) direct labor, 2) other direct costs, 3) team subcontract costs, 4) indirect costs, and 5) fixed fee. 2.3.1 Direct Labor Cost of Service KPMG Consulting does not propose direct labor for company management or clerical hours. In accordance with our CASB Disclosure Statement, the labor costs associated with company management are indirect labor and recovered as part of our indirect rates. Although we do not currently anticipate the need for clerical efforts, depending on the requirements of a particular task assignment order, and in accordance with our CASB Disclosure Statement, any direct labor hours incurred by clerical labor will be proposed and charged directly to the contract assignment task order. As mentioned in Section 2.2 above, KPMG Consulting calculates direct labor costs and fringe benefits together. Instead, KPMG Consulting calculates a Cost of Service (COS) rate that includes direct labor and fringe benefits. These COS rates are presented annually to DCAA for review and audit. Exhibit 1 presents our DCAA submitted category average labor rates for Fiscal Year 2002 (July 1, 2001 – June 30, 2002) and escalated out-years: Exhibit 1. KPMG Consulting Fiscal Year COS Rates KPMG Consulting Labor Classification and Category DCAA Submitted Method 2 FY 2002 2.0% Escalated FY 2003 2.0% Escalated FY 2004 2.0% Escalated FY 2005 2.0% Escalated FY 2006 2.0% Escalated FY 2007 Consulting Staff: Managing Director $139.75 $142.55 $145.40 $148.31 $151.28 $154.31 Senior Manager $98.80 $100.78 $102.80 $104.86 $106.96 $109.10 Manager $72.75 $74.21 $75.69 $77.20 $78.74 $80.31 Senior Consultant $60.60 $61.81 $63.05 $64.31 $65.60 $66.91 Consultant $46.66 $47.59 $48.54 $49.51 $50.50 $51.51 Analyst Staff: Senior Systems Analyst $54.33 $55.42 $56.53 $57.66 $58.81 $59.99 Systems Analyst $39.35 $40.14 $40.94 $41.76 $42.60 $43.45 Senior Management Analyst $38.74 $39.51 $40.30 $41.11 $41.93 $42.77 Management Analyst $33.37 $34.04 $34.72 $35.41 $36.12 $36.84 Since we do not have a separate fringe benefit pool, we have not broken out fringe benefits in our cost proposal. However, we estimate that fringe benefits, inclusive of bonus, amount to approximately 40% of salary amounts included in our cost of service rates. KPMG Consulting assessed each of the positions in the EPA solicitation and developed a blended rate to meet each labor category requirement. The blending compared technical and experience requirements of each EPA labor category, as defined in the RFP, to the technical proficiency and experience of the personnel in each Consulting and Analyst staff classification. Attachment 3-Labor Support Schedules summarize this blending of the above KPMG Consulting category rates by fiscal year into the contract category rates by contract fiscal year.

2.3.2 Certification of Key Personnel

KPMG Consulting certifies that all key personnel (including subcontractor personnel) meet the qualifications specified in the RFP for the EPA category they are proposed and are available to begin work upon contract award. Upon assignment of individuals other than key personnel to a particular task order, if requested, we agree to provide documentation to demonstrate the employee’s qualifications for the labor category proposed.

2.3.3 Other Direct Costs

Since it is not known what ODC requirements will be for a particular task assignment, we propose the other direct cost amounts specified in the RFP at the prime level. In accordance with our CASB Disclosure Statement, KPMG Consulting charges the following ODCs included in the RFP direct to contracts: direct travel, direct calling card and cell phone usage, direct software licensing, and direct computer, equipment and materials if required). We charge all other ODCs listed in the RFP as indirect costs in our DCAA approved accounting system. In accordance with our CASB Disclosure Statement, KPMG Consulting applies full G&A to the total estimated cost for other direct costs. As required by the RFP, we will submit detailed ODC breakdowns for each task assignment proposal.

2.3.4 Subcontract Costs

The proposed subcontract costs represent the proposed cost for the level of effort to be provided by our three team subcontractors: 1) Veridian Information Solutions (VIS), 2) Sciences International, Inc., and 3) KeyLogic Systems, Inc. In accordance with our CASB Disclosure Statement, KPMG Consulting applies full G&A to the total estimated subcontract costs. Enclosures 1, 2, and 3 are each subcontractor’s sealed cost proposal. As noted in Section 2.1 above, each of the subcontractors consider their cost proposals proprietary and competition-sensitive. Therefore, Attachment 4-Cost Summary Consolidation Schedules consolidates fully-loaded direct labor exclusive of fixed fee for KPMG Consulting and our three team subcontractors. KPMG Consulting requested each subcontractor to propose no more than a 4% fixed fee on total costs. Please see each subcontractor’s sealed package in the Enclosure section of the original proposal only.

2.3.5 Indirect Cost Structure

2.3.5.1 Contact Information

Verification of our proposed cost of service, overheads, and G&A rates and our accounting practices as described in our Cost Accounting Standards Board (CASB) Disclosure Statement should be directed to: Sylvia Moore, Supervisory Auditor Defense Contract Audit Agency (DCAA) Rosslyn Branch Office 6800 Versar Center, Suite 329 Springfield, Virginia, 22151 (703) 325-9542 Sylvia.Moore@dcaa.mil Our internal KPMG Consulting DCAA Liaison point of contact for accounting system and supporting documentation is: Laura E. Collins, Manager KPMG Consulting 1676 International Drive McLean, VA 22102 (703) 747-4534 lecollins@kpmg.com

2.3.5.2 Indirect Cost Pools, Bases, and Rates

KPMG Consulting’s indirect rates structure consists of three different indirect costs rates: 1) Professional/Consultant Overhead, 2) Analyst Overhead, and 3) General and Administrative (G&A). Overhead Costs. KPMG Consulting has two overhead rates: one for Professional labor categories (Consultant and above) and the other for Analysts categories (Systems and Management Analysts). The major elements of our overhead cost pools include the following as appropriate:  Compensation/Costs of Service for Indirect Labor  Related expenses such as Travel  Allocated Occupancy and Support Services Consulting Overhead also includes administrative support staff compensation/costs of service and related expenses. KPMG Consulting’s base for overhead rates is the appropriate direct cost of service dollars. G&A Costs. The major functions/activities and elements of costs in our G&A cost pool include the following:  IR&D & B&P Projects  Sales & Marketing  Compensation/Costs of Service  Related Expenses such as Travel  Outside Services  Allocated Occupancy and Support Services  Directly Allocated Corporate Marketing  Allocated Residual Home Office Costs including: o Executive Administration o Finance and Accounting o Human Resources o Information Systems KPMG Consulting’s base for G&A cost pool is total cost input. Exhibit 2 presents our DCAA submitted indirect cost rates for Fiscal Year 2002 (July 1, 2001 – June 30, 2002) and out-years through Fiscal Year 2006: