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Does anyone here use the weighted guidelines to evaluate the reasonableness of a subcontractor's fee?  Would that be appropriate?  This a firm-fixed price subcontract. 

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We use the weighted guidelines for all of our subcontract cost analysis reports.  There's no requirement to use it, but CO's, the DCMA, and DCAA generally like seeing it since it's familiar to them.  In fifteen years of providing cost analysis reports on behalf of large primes, this approach has never been challenged.

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 Thank you... that's actually usefulto know. But my challenge is this: since we don't have privity of contract with the subcontractor; I.e. relationship is between the prime and the sub;  aren't there factors that the prime may be considering that we have no reason to know? Couldn't there be lots of valid reasons why a prime considers a fee reasonable but inure to no direct benefit to the government?

in my mind the weighted guidelines assume a direct contractual relationship ,  making it a less valuable tool for a subcontract.  And does the primes analysis/rationale for the subcontracter  Play any role in evaluating the fee? It seems to me that would be the primary point of analysis – with the  weighted guidelines as a supplement. 

Have you ever heard this point of view in your  15 years?

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Hi DGJDKO

Could you possibly clarify whether you are focusing on cost type subcontracts that required cost or pricing data (use of the word "fee"), or whether you are focusing on fixed price subcontracts (under which profit is applicable, not fee). Are you a Government employee? Not sure I understand your role.   

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1 hour ago, DGJDKO said:

 Thank you... that's actually usefulto know. But my challenge is this: since we don't have privity of contract with the subcontractor; I.e. relationship is between the prime and the sub;  aren't there factors that the prime may be considering that we have no reason to know? Couldn't there be lots of valid reasons why a prime considers a fee reasonable but inure to no direct benefit to the government?

in my mind the weighted guidelines assume a direct contractual relationship ,  making it a less valuable tool for a subcontract.  And does the primes analysis/rationale for the subcontracter  Play any role in evaluating the fee? It seems to me that would be the primary point of analysis – with the  weighted guidelines as a supplement. 

Have you ever heard this point of view in your  15 years?

Absolutely - here's the deal with profit/fee (as long as you're calculating as a % of cost, we're basically talking about the same thing):  It's the one area of a subcontractor's proposal that doesn't require any support or substantiation.  A sub can propose an exorbitant profit/fee rate and there's no requirement that they explain it to you.  Same goes between the Prime and the government.  Where things get sticky is when the Prime sets forth an opinion of reasonableness in a cost/price analysis.  If that opinion is not supported with a systematic method of evaluation, then it's going to be subject to challenge.

In other words, you can analyze and support profit in any way you see fit.  It requires no additional information from the sub and there's no requirement that you have to use the Weighted Guidelines.  It just so happens that the Weighted Guidelines is a systematic approach that is generally accepted in the industry.

I echo Neil's question above - what is your role?  Is this a TCOPD (formerly "TINA") procurement?

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Excellent - thank you both.  I'm the government Specialist on a cost reimbursement contract but with a fixed price subcontract.  I had a KO say that only the weighted guidelines were acceptable for evaluating sub profit )( I misused the term fee earlier).  Maybe to her, but I was thinking along the lines of Patrick's post.  

Our difference on this wouldn't normally matter much but I'm also working on a mod (different contract) to substitute subcontractors...and the although the new subs fee is very high the total subcontract price is actually lower.  Her position is that the high fee is unacceptable - meaning we're willing to walk away.  My position is that -particularly since the total price is lower - then we can support a wide range of subcontract profit rates.  She responds that the weighted guidelines says "x" so we give them "x."  That's what sparked  my question here.  

My program office wants that particular sub and is at full-on lagerheads with my KO.  I understand that the fee is high but considering our discretion on subcontract fee I don't think it's worth jeopardizing our relationship with the program office.  

Thanks..this answers my question.  Your thoughts on the rest of that scenario are welcome too.  

 

 

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1 hour ago, DGJDKO said:

I'm the government Specialist on a cost reimbursement contract but with a fixed price subcontract.  I had a KO say that only the weighted guidelines were acceptable for evaluating sub profit ( I misused the term fee earlier).  Maybe to her, but I was thinking along the lines of Patrick's post.  

...Her position is that the high fee is unacceptable - meaning we're willing to walk away.  My position is that -particularly since the total price is lower - then we can support a wide range of subcontract profit rates.  She responds that the weighted guidelines says "x" so we give them "x."  That's what sparked  my question here.  

My program office wants that particular sub and is at full-on lagerheads with my KO.  I understand that the fee is high but considering our discretion on subcontract fee I don't think it's worth jeopardizing our relationship with the program office.  

DGJDKO:

Are you familiar with the following passage from FAR 15.405, "Price Negotiation," paragraph (a):

Quote

Taking into consideration the advisory recommendations, reports of contributing specialists, and the current status of the contractor’s purchasing system, the contracting officer is responsible for exercising the requisite judgment needed to reach a negotiated settlement with the offeror and is solely responsible for the final price agreement.

Emphasis added.

Given that your CO "is solely responsible" for the pricing of the mod, she is entirely within her rights to  use whatever analytical devices she chooses and to take the position she has taken. Your opinion is just that. It's not a matter of "our" discretion, as you put it. It's her discretion.

I don't know whether your CO's thinking is sound in this matter, and neither does anyone else at Wifcon Forum. But as a former CO, contracting director, and chief of a contract office I will say that in my opinion you should rethink your attitude toward your CO. I hope that you're not being disloyal to her when talking to the program office.

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I can see how you would glean that from this conversation, and that's a fair response.  But this particular KO is a completely"black-and-white" rule reader; inflexible and downright obstinate.  I do NOT have a personal dislike for her so my professional opinion is not driven by emotion.  I'm often given directives like this without any explanation at all.  And while I agree with all said on this forum, our internal policy strongly suggests that we should focus on the primes analysis, if any(there is).  So I was given a directive contrary to policy and without explanation (after requesting one). Repeated practice of this kind of leadership has produced frustration in me and others, and we often find ourselves searching for the wider boundaries to do a better deal instead of slavishly following unexplained directives. Maybe that is disloyal, but if so, it's in response to unwarranted distrust of any opinion other than her own in spite of evidence to the contrary.  Is that disloyal, or a natural response?  

I get it, she's the KO and it's her discretion, not "ours."  But I also think a seasoned specialist should be allowed to present alternatives and create solutions that lead to what might be a better deal. This is how great deals are done and how contracting teams develop, imho.  I'm (and others) not given the professional respect of even a dialogue, so here I am, with "attitude." So sue me.  Or her actually...she's the KO right?

i wasnt here to vent, but in light of the suggestion that I might be "disloyal" I'm forced to defend myself with context. You can't plant seeds of distrust and expect loyalty in return.  

This style has had an incredibly negative impact on my organization.  We have some customers paying outside shops to buy for them.  

 

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Quote

...Her position is that the high fee is unacceptable - meaning we're willing to walk away.

Why walk away?  Negotiate!

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I also meant to point out the first sentence of that FAR passage: "taking into account...reports of contributing specialists."  Our opinion counts for at least something right?

 

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9 hours ago, DGJDKO said:

But this particular KO is a completely"black-and-white" rule reader; inflexible and downright obstinate.  

DGJDKO:

I don't mean to pick on you, but you invited us to comment on your disagreement with your CO, welcoming our "thoughts on the rest of that scenario...." I think you are looking for moral support. If so, you won't get it from me based on the facts available to us. Someone made her a CO. It's her prerogative to be a black and white rule reader. As for inflexible and obstinate, well, that's your opinion. I'm sorry if it's true, but we don't know her or you, and I don't see any reason to take your word for it.

9 hours ago, DGJDKO said:

I'm often given directives like this without any explanation at all.

Since we don't know the context, we can't develop an informed opinion about your assertion.

9 hours ago, DGJDKO said:

[O]ur internal policy strongly suggests that we should focus on the primes analysis, if any(there is).  So I was given a directive contrary to policy and without explanation (after requesting one). 

Does the policy require that you focus exclusively on the prime's analysis, without doing any analysis of your own? Does the policy strictly preclude use of weighted guidelines when evaluating a subcontract price as part of a prime's proposed estimated cost? I believe this is your first mention of there being any contrary internal policy.  Is it a written policy? Is it publicly available? Anyway, you said that she is a "black and white rule reader." Which is she, a blatant policy violator or a rule fanatic?

9 hours ago, DGJDKO said:

Maybe that is disloyal, but if so, it's in response to unwarranted distrust of any opinion other than her own in spite of evidence to the contrary.  Is that disloyal, or a natural response?  

If she distrusts you, your comments about her suggest that she might have a reason to do so. You could have asked your question about weighted guidelines without going into your differences with your CO. Perchance, have you given the prime any reason to believe that you think the CO's position is unreasonable? Have you given the program office any reason?

9 hours ago, DGJDKO said:

I also think a seasoned specialist should be allowed to present alternatives and create solutions that lead to what might be a better deal...  I'm (and others) not given the professional respect of even a dialogue, so here I am, with "attitude." So sue me.  Or her actually...she's the KO right?

It would be bad for the CO to refuse to listen to you at all. But I understood from your posts that you did present alternatives and that the CO rejected them. We've heard only from you that her rejection was a matter of obstinacy. She hasn't had a chance to present her reasons to us or to show us that you're right.

What's wrong with speculative use of weighted guidelines to develop a negotiation position on the amount of subcontractor profit included in the prime's proposal? It seems pretty obvious to me that there is nothing illegal or inherently unsound about doing that when negotiating with the prime. Would I do it? I don't know. Maybe, depending on the amount of the subcontract price and what was going on in my negotiations with the prime. Would I be obstinate about doing it if I thought it were the right thing to do? Yeah. I hope you would, too, if you were a CO.

Is the CO seeking to make the amount of subcontractor profit an express term of the mod? If not, then the prime could simply say to you: We understand your CO's position on subcontractor profit and have taken it into consideration in making our newest estimated cost proposal. We don't need to reach an express agreement on the amount of subcontractor profit. We don't need to disagree, either. The subcontract price is to be fixed, none of us know or may ever know what profit the subcontractor will actually realize, so we want to focus on the bottom line subcontract price and move on to complete our negotiation of the estimated cost of the prime contract mod.

If she is proposing to make the subcontract price or profit an express term of the mod, I would say she is unwise, but I would not say she is wrong. It would not be against the law. 

9 hours ago, DGJDKO said:

This style has had an incredibly negative impact on my organization.  

Well, that is a matter for your organization's management.

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All points very well taken.  I didn't mean to veer off into organizational issues but I guess many times the pure work of contracting is constrained by the people involved.

You reminded me to respect the power of a KO's signature and the responsibility attached thereto. 

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And no, it's not an express term, but we are treating it as such by making it the do-or-die negotiating point.  We'll see if they walk away! 

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Remember that when negotiating a mod to a CPFF contract ii is usually the case that the only thing that is really settled is the fee adjustment. The estimated cost is effectively just a budget figure, and, generally, you are not negotiating an advance agreement on the allowability of the subcontract price.

If the subcontract is to be fixed-price, then the contractor will invoice for reimbursements of payments to the sub. The question at that time will be whether the subcontract price is reasonable. It would not make sense for negotiations to break down over the amount of profit that is presumed to be included in the subcontract price, because that might not reflect the real profit, and profit would not be a separately allowable or unallowable amount in any case. In effect, by arguing that the profit is too high the CO is arguing that the subcontract price is unreasonable. What matters is whether the price is right for the job or product.

The issue in negotiations should not be the use of weighted guidelines. The issue should be the reasonableness of the subcontract price at the bottom line. So ahead and use the weighted guidelines, but don't get hung up on subcontract profit. You might be able to handle this without contradicting the CO by writing an artful price negotiation memorandum. (A task I used to love. Seriously.)

 

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Sound advice, as usual, from Vern. If you'd like the FAR citation regarding his analysis, refer to FAR 15.405(b) which states:

"The contracting officer’s primary concern is the overall price the Government will actually pay. The contracting officer’s objective is to negotiate a contract of a type and with a price providing the contractor the greatest incentive for efficient and economical performance. The negotiation of a contract type and a price are related and should be considered together with the issues of risk and uncertainty to the contractor and the Government. Therefore, the contracting officer should not become preoccupied with any single element and should balance the contract type, cost, and profit or fee negotiated to achieve a total result -- a price that is fair and reasonable to both the Government and the contractor."

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Back in the day, we (contractor) ALWAYS used the DOD weighted guidelines. We used them to support our proposed profit/fee. Naturally, we maxed-out everything we could, whereas the government always minimized the factors. But it worked, in the sense that we were both negotiating from the same set of parameters. Nobody was taking an "out of the box" approach, and that typically led to agreement sooner rather than later.

On the other hand, I once had a client who made some widgets that were covered by a number of patents and so it was the only game in town. These widgets were absolutely necessary and nobody else could make them. Period. That contractor routinely asked for, and received, profit rates in excess of 40% on costs, on its FFP contract awards. If the government customer wanted to execute its mission, then that was the price that needed to be paid. Obviously, that contractor was an outlier.

 

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DOD weighted guidelines (WG) are just a negotiation tool. The idea behind the WG is to provide a rational method of developing a profit objective when prices are not determined by market behavior. The original weighted guidelines were developed by DOD  in 1963 for inclusion in the Armed Services Procurement Regulation. They appeared in ASPR 3.808. See the Federal Register of November 23, 1963, 28 FR 12546, 12555. They've been revised many times. The first significant revision was made in 1976 as a result of a major DOD profit study ("Profit '76") and policy change. See 41 FR 40238, September. 17, 1976. Other agencies began to adopt the WG method, with variations, in the mid-1970s.

When required to develop a WG profit objective a great negotiator will develop three: (1) a base, (2) a worst case, and (3) a best case. The base profit objective should be based on the most likely cost estimate. The worst case should be based on the worst case cost estimate. The best case should be based on the best case cost estimate. The worst case to most likely case provides one profit function and the most likely case to the best case provides another. Think of the profit functions as guide ropes from the barn to the house and from the house to the outhouse during offer and counteroffer. During negotiations do not discuss profit as a percentage of cost. Discuss it as a dollar amount associated with a cost. Bargain with dollars, not percentages.

Developing three WG profit objectives is a lot of work, but doing it is the mark of a negotiation strategist and tactician.

 

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