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Pricing & Charging


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I work in pricing and at my last place of employment, setting up the CLIN structure, to price, so we ensured charging as we priced. I am trying to find the CAS requirement or FAR requirement or why I was always told you have to price the program the way you intend to manage the program - specifically related to CLIN structure. So, if I have a CLIN for Management, Modification and Spares - I charge so my actuals can be identified by these pieces. I found CAS 401, but that pertains to direct vs. indirect and following your disclosures. I'm trying to find if there are any requirements that pertain directly to CLIN structure. Thanks.

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Reminds me of a class I took once. In the class, the instructor gave a group of six or so students an assignment. The assignment was to listen carefully to what they are being told and to be able to repeat it as accurately as possible. The instructor had all the students in the group leave the room except for one, he then, in front of the class, verbally gave that one remaining student some information. He then brought in one of the students that left the room and had the student that he just told the information repeat the information to the student that just came in. This was repeated, where the second student passed on the information to the third student, so and so on.

You would be amazed, despite the students? best efforts to complete the assignment, at how the message changed as it was passed along.

I think it will take a lot of creative archeology to extract the original relevant information. It might be best to start with a fresh slate.

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Complete sentences would certainly be helpful. I guess I got wrapped around the axle trying to disect what has been passed down and what I understood, I apologize. Let me try again. I was under the impression, when pricing, one goal is to price a program the way you intend to charge that program. Because this was an issue when we were developing a CLIN structure to price, I understood the sentence to mean, the actuals charged to a program needed to be in allignment with the CLIN structure that is being priced. I have noticed, currently, when I price a program and receive an award, the charging does not lend itself to this concept. In example, if I price a program by aircraft (say 3 CLINS - A/C 1, A/C 2, A/C 3), the actual charge numbers are set up so a department charges in total to a task (say Mechanical Fab). Thus all of operations, mechanical fab, hours for all three a/c, are rolled into one charge number. I can't see how many hours were expended to each A/C (or CLIN). I was under the impression this was a violation of a CAS requirement, because a program has to be charged the way it was priced. I am curious is this was an actual regulation or just good business. I was hoping someone could direct me to a regulation that would help me learn more or direct me there is no such regulation. Either way, it will help me immensely.

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Complete sentences would certainly be helpful. I guess I got wrapped around the axle trying to disect what has been passed down and what I understood, I apologize. Let me try again. I was under the impression, when pricing, one goal is to price a program the way you intend to charge that program. Because this was an issue when we were developing a CLIN structure to price, I understood the sentence to mean, the actuals charged to a program needed to be in allignment with the CLIN structure that is being priced. I have noticed, currently, when I price a program and receive an award, the charging does not lend itself to this concept. In example, if I price a program by aircraft (say 3 CLINS - A/C 1, A/C 2, A/C 3), the actual charge numbers are set up so a department charges in total to a task (say Mechanical Fab). Thus all of operations, mechanical fab, hours for all three a/c, are rolled into one charge number. I can't see how many hours were expended to each A/C (or CLIN). I was under the impression this was a violation of a CAS requirement, because a program has to be charged the way it was priced. I am curious is this was an actual regulation or just good business. I was hoping someone could direct me to a regulation that would help me learn more or direct me there is no such regulation. Either way, it will help me immensely.

CAS 401 (48 CFR 9904.401) requires that the "cost accounting practices" used to estimate costs must be consistent with the cost accounting practices used to accumulate and report costs (and vice versa). The Standard has been interpreted to permit use of estimating techniques that summarize costs at a higher level than the contractor will account for them, but prohibits use of more detailed estimating techniques than the contractor's accounting system will use to accumulate costs. CLINS and WBS codes are not cost accounting practices (which is a term of art defined by the CAS regulations). So unless there are more facts to discuss, I don't think CAS controls the situation you describe.

That said, if the contract requires reporting by CLIN, the cost accounting system must be able to accumulate and report costs by CLIN. In general, a properly established WBS/OBS structure will facilitate the proper crosswalk between estimating, accounting, and reporting. I think you are right to be concerned by the situation, but it doesn't seem to be a CAS issue ... more of an estimating system issue or even a potential defective pricing issue (in that the contractor may not be able to tie its actual costs back to its cost estimate).

I think Vern wants to know contract type because costs may not be relevant if each CLIN is FFP. In that case, you bill the FFP price regardless of costs incurred, so it wouldn't be an issue (except for a potential TINA issue as I noted above). It might be more of an issue if the contract type was "flexibly priced" or if the Government had awarded an undefinitized contract action (UCA). (If it's FFP with progress payments based on costs, that could generate an issue.) So contract type is relevant to the discussion ... and you should of course confirm that the contract in question is subject to CAS.

There is quite a bit more to be said on this topic, but hopefully this will suffice.

Hope this helps.

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  • 2 weeks later...

Thank-you! This program is FFP, but we have quite a few CPFF and most of our FFP have PBPs. Also, the customer did request specific CLINs for pricing (and we did break those CLINs down further - which I knew was OK to roll up). So, it appears there is not a regulation per se that is as black and white as I personally like, but enough regulations to make it a good habit. Also, just for analysis, I personally believe the actuals should tie back to the estimate.

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Thank-you! This program is FFP, but we have quite a few CPFF and most of our FFP have PBPs. Also, the customer did request specific CLINs for pricing (and we did break those CLINs down further - which I knew was OK to roll up). So, it appears there is not a regulation per se that is as black and white as I personally like, but enough regulations to make it a good habit. Also, just for analysis, I personally believe the actuals should tie back to the estimate.

sm2jones,

Just a small reminder that, according to the DOD's PBP User's Guide, PBPs values should not be tied to contractor costs incurred. Instead, the PBP events should facilitate meaningful performance measurement and the values assocated with those events are negotiated based on any rational means of doing so. The only real proscription is to avoid front-loading PBP values to the point that they become, in effect, advance payments. My point is that, once negotiated, PBP values should have no relationship to actual costs incurred, unless somebody has decided to ignore DOD guidance.

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