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Patrick Mathern

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About Patrick Mathern

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    Santa Barbara, CA
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    Cost analysis, supplier rate and factor audits, business system reviews, training, consulting, exchanging ideas, networking

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  1. Hey there Gonzo - If I'm understanding correctly, you're looking to get to the point where you show up on the radar...you haven't been notified by the DCMA of a CPSR yet, correct? If that's the case, don't spend your time shoring up what's already been done, just fix things going forward. CPSR's typically cover a 12 month period that ends as close as is practical to the date the CPSR happens. Time estimates are difficult to determine. You could burn 500 hours just on policies and procedures if you're starting from scratch. In a nutshell, you need to shore up your policies and procedures, implement new templates, and then train everyone on all of the above. Your incremental effort will lie in the policy/procedure/template development as well as training and implementation time. My recommendation: find a consultant that can sell you pre-packaged policies and procedures, then use in-house labor to implement tools that will get your folks up to speed (plug SpendLogic *here*) and train to the procedures and tools that you've implemented.
  2. Lots of good detail in the replies here. For the short and sweet (and actionable) version, here you go: The only way to “justify” this in a PAR is to get additional fact-based information from the supplier and to include these in the price analysis. It’s common to be directed by management to justify a price...but it’s hard to do. I’ve been there and don’t envy you. If these costs truly turn out to be contingency costs (which amounts to profit if they don’t come to fruition,) you’re going to have findings if this package is pulled in a CPSR. In this case, your best bet is to have a price adjustment clause in both your negotiated subcontract as well as your negotiated Prime contract. One last option if these are contingent costs is to write the PAR on the price you truly believe to be fair and reasonable (excluding contingent costs) and then having Management provide an authorization to agree to the price offered. Cite it as “best obtainable” and get a Management signature from someone with sufficient authority to make this call. It’s a CYA game at that point, but will generally be accepted in a CPSR. Patrick
  3. Not sure whether you've gone down this path yet or not, but SpendLogic automates forms for Price Analysis, Commercial Items, and Source Justifications, the "Big 3" in CPSRs. Happy to chat if you're interested in learning more. There's a free trial (full functionality, no credit card required) at https://spendlogic.com/, just click on "Try it Free."
  4. Take another look, Joel. While it's discussed in 15.404-1(c), it's actually set forth specifically in 15.404-1(d) and is separate from either cost or price analysis. Having said that, and to your point Joel, it most closely resembles cost analysis in that you're evaluating separate elements of cost. My original response aimed at avoiding confusing cost realism with cost analysis of certified cost or pricing data.
  5. Neil, in reference to... ...the purpose of competition is to motivate sellers to set forth a proposal based on the stated award criteria. "Adequate competition" simply requires two or more bidders to respond with responsive and viable offers. If that criteria is met, the bidders are relieved of the requirement for certified cost or pricing data. Hurdles: 2 bidders (self explanatory and objectively determined) Responsive offers (self explanatory and objectively determined based on comparison of proposal with RFP) Viable offers (this is where cost realism comes into play) If the viable offers hurdle wasn't cleared, I would work with the bidder(s) to come to terms on that point. They will likely be motivated to participate when given a choice between cost realism and submitting certified cost or pricing data.
  6. Depends on what you mean by "price analysis." If you consider analysis of other than certified cost or pricing data to fall under cost analysis, then so be it...you're conducting cost analysis instead of price analysis. Just note that you're NOT required to obtain certified cost or pricing data and conduct a full FAR 15 compliant cost analysis. Cost Realism is very different from Cost Analysis.
  7. You’ve mentioned cost analysis here - if you’ve documented adequate competition, per FAR 15.403-1, you alleviate the certification requirements. The contracting officer wouldn’t be required to do a cost analysis unless the competition is somehow determined inadequate. Your cost reimbursable contract type will subject you and your sub to accounting system adequacy questions. That’s potentially a much bigger issue than price reasonableness, although the two go hand in hand.
  8. The only reason I can surmise that the COO would want to talk Contribution Margin is that you're currently heavy on indirect (fixed) costs. If you have had a sudden downturn in business or if you missed winning a large contract that was already figured into annual revenue, then the COO is going to be very concerned with covering that shortfall. H2H is correct in the defective pricing comment, but based on what you're saying, I'd guess (and yes, it's a complete guess) that your COO is covering shortfall rather than building a windfall. As for the difference in Gross versus Contribution, this site does a good job of explaining it: https://www.investopedia.com/ask/answers/122314/what-difference-between-gross-margin-and-contribution-margin.asp An excerpt: "In comparison with gross profit margin, [contribution margin] is a per-item profit metric, as opposed to the total profit metric given by gross margin."
  9. I believe the point that Retread's making here (and in which I'm also interested) is as follows: Assume the Prime is exempt from submitting certified cost or pricing data due to competition at the Prime Contract level. Now assume that the Prime has a subcontract on this same prime contract that exceeds the TCOPD threshold and is not subject to FAR exemptions. What will the CPSR team expect to see if they pull this file down the line? A cost analysis and cost or pricing data cert from the sub?
  10. Just took a look at ERI Salary Assessor - it doesn't appear to me that it has any insight into markup. This appears to just be salary...please correct me if I'm misreading this, general_correspondence. SpendLogic is (still) the only tool I know of that provides automated bottoms-up analysis of rates including markup (indirects and profit). Also, I disagree with this comment regarding using GSA. The problem with GSA is that it DOESN'T show what GSA pays...
  11. I've seen the DCMA reject the use of GSA in a CPSR and issue findings. Most large companies know this and have notes in their procedures that GSA data cannot be used as a basis for price analysis. CALC is a great tool when used in conjunction with other methods, but relying on it or basing a price analysis on the data is inadvisable from an audit perspective. I probably don't have to say this, and I don't believe general_correspondence mean it to be used as such, but applying a random multiplier is also something that will get you dinged by the DCMA and DCAA. General_Correspondence: What is ERS? Can you provide a link?
  12. Hi Realquiet - We've developed a labor rate analysis tool that relies on government data (BLS, Census, and IRS) and does just what you're asking, plus writes the price analysis document. Email me (patrick@spendlogic.com) and I can show you and example and get you set up with a free trial. Patrick
  13. Posting back and forth always loses something in translation, so thanks for being patient. I'm still missing something here. How was your client "approved" to do the work? Do they have written documentation from someone at the Prime that carries contractual authority? If so, and if they worked for 90 days based on that approval, then there doesn't appear to be an issue with getting paid for it. Or does the "authorization" refer to the Gov authorizing the Prime?
  14. Based on the above quotations, I don't understand your final point of "not signing and [then] not getting paid." It appears that they already have a contract with the Prime. Since it's LOE, there's no deliverable required other than their effort toward a specified objective. I'd recommend getting solid on their existing contract and then going from there. If they don't have a contract with the Prime, what was the "approval" they were working under?
  15. H2H is correct. To figure this out for your company, you first need to know how the rate was originally calculated. You must then apply that rate the exact same way. If that satisfies your question, stop reading here. If you want to see this concept in action, here you go... Imagine a company with annual labor costs of $500K (we will use this as a base for overheads in this example). They have fringe of $150K, overhead cost of $50K and G&A of $25K. In a perfect world, they will have forecast revenues such that they recoup exactly $725K at the end of the year (this is the sum total of all their cost, but excludes profit for this example). Fringe = $150/$500 = 30% Overhead = $50/($150 + $500) = 7.69% G&A = $25/($50 + $150 + $500) = 3.57% Assume they nail their forecast labor cost of $500K. Wrap Option 1 (1+Fringe Rate + OH Rate) * (1+G&A Rate) = 500 *(1+0.3 + .0769) * (1+.0357)= 713 Since it’s not equal to $725, we know this is wrong. Adding fringe and overhead rates in this way suggests the rates are both only applied to direct cost. OH should be applied to direct plus fringe. Wrap Option 2 1 + Fringe Rate + OH Rate + G&A Rate 500*(1 + 0.3 + .0769 + .0357)=706 Wrong again. This implies all rates are applied only against direct. Again a violation of how they were calculated. Wrap Option 3 (1+ Fringe Rate)*(1+ OH Rate)*(1+G&A Rate) = 500*(1+ 0.3)*(1+ .0769)*(1+.0357) =725 Fringe is applied against direct. OH against fringe plus direct. G&A against fringe plus direct plus OH. This is how they were calculated to create the rate, so this is correct. Now for the kicker... Let’s re-calculate our rates using a different method. Same cost assumptions. We will change the Overhead rate in alignment with Wrap Option 1: Fringe = $150/$500 = 30% Overhead = $50/$500 = 10% G&A = $25/($50 + $150 + $500) = 3.57% Now we re-apply using the new rates.... Wrap Option 1 (1+Fringe Rate + OH Rate) * (1+G&A Rate) = 500 *(1+0.3 + .1) * (1+.0357)= 725 We could do the same thing for Wrap Option 2. This is why H2H says that you need to understand how the rate is calculated in order to determine the “right” way to do it. HAVING SAID THAT...Wrap Option 3 is most common because of a concept that says indirect costs should be tied to the direct costs which they’re related to. But that’s a whole other post...
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