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Neurotic

Cost Realism, MPC and Award

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We performed a cost realism for a cost reimbursement acquisition. One offeror submitted an FPRP to DCMA for indirect rates after proposal submission. The agency incorporated the FPRP rates into the realism and made an upward adjustment for the MPC. Since the MPC is used for tradeoff and the award will be made at the proposed price, we are wondering how to deal with a situation of a known potential cost overrun, if that offeror is selected for award.

Would you request an updated proposal (after source selection)incorporating the FPRP rates? or maybe just ignore this issue for award purposes and closely monitor (what we should do anyway) the rates during performance?      

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9 minutes ago, Neurotic said:

we are wondering how to deal with a situation of a known potential cost overrun, if that offeror is selected for award.  

That's an oxymoron Neurotic.

10 minutes ago, Neurotic said:

Would you request an updated proposal (after source selection)incorporating the FPRP rates?

Are you asking if you should modify the contract after award to increase the Target Cost based on the FPRP?  Why does (or should) a contractor's proposed rates have to match their FPRP?

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53 minutes ago, Neurotic said:

Would you request an updated proposal (after source selection)incorporating the FPRP rates? or maybe just ignore this issue for award purposes and closely monitor (what we should do anyway) the rates during performance?  

I think that you are asking whether you should award the contract at the proposed estimated cost or the government-adjusted estimated cost. Is that right?

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Vern

I believe award has to be made at the proposed estimated cost. However, we know that the estimated cost does not consider the impact of the updated indirect rates. Therefore, we would be awarding at an estimated cost that we know that on contract day one will increase because of the higher rates. I may be looking too much into this. But, I think would be kind of stupid to award at a price that we are already almost certain is lower than it would be.  

 

 

 

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I suppose this is a competitive acquisition, because you wrote "One offeror submitted..." and "tradeoff".

You may open discussions with all offerors in the competitive range.

Or, if you want to award without discussions, you award at the proposed price (estimated cost + fee = price).  If the contractor gives you a notice of overrun during contract performance, you exercise one or more of the Government's flexibilities as listed in the clause at FAR 52.232-20 or -22, and you record the contractor's MARGINAL or UNSATISFACTORY performance under the cost control element in CPARS.  If you do add additional funds to cover the overrun on estimated cost, you do not increase the fee.  You may have other remedies available to you, depending on whether this is a CPFF or CFAF contract.

At this point, you do not know that the offeror will overrun -- you acknowledge a possibility, but you don't know.  It would be stupid to award on the probable cost calculated by the Government, so don't even think about it.  Remember, if you think this is really a huge problem, you can open discussions with all offerors in the competitive range.

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1 hour ago, Neurotic said:

I believe award has to be made at the proposed estimated cost.

Why do you believe that?

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Vern

To respond to your question : FAR 15.404-1 (d) (2) (i). Thanks for your input. It looks like this forum has certainly changed since the last time I was here. 

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And to add to the real subject, here's a previous post found here in this website: "excerpt from Formation of Government Contracts, Third Edition, by Cibinic & Nash (p. 1107-8): 

In most competitive procurements, the cost of performance is a significant evaluation factor in the source selection decision. As a result, offerors are motivated to make very optimistic estimates of the costs of performance. Although such estimates are adjusted, through cost realism analysis, for the purpose of selecting the winning contractor, contracting officers have a tendency to award contracts based on the cost estimate submitted by the contractor in the competitive process. This is a questionable procedure because it results in a contract funded at too low a level to permit accomplishment of the work. A much better procedure would be to include an estimated cost at a level representing the contracting officer's appraisal of the realistic cost of performance. However, it appears that only a minority of contracting officers follow this procedure, with the result that many CPFF contracts contain estimated costs that are unreasonably low.
 
 

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1 hour ago, Neurotic said:

Vern

To respond to your question : FAR 15.404-1 (d) (2) (i). Thanks for your input. It looks like this forum has certainly changed since the last time I was here. 

FAR 15.404-1(d)(2)(i) says:

Quote

The probable cost may differ from the proposed cost and should reflect the Government’s best estimate of the cost of any contract that is most likely to result from the offeror’s proposal. The probable cost shall be used for purposes of evaluation to determine the best value.

What does that have to do with the amount of the estimated cost at which you award the contract?

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59 minutes ago, Neurotic said:

And to add to the real subject, here's a previous post found here in this website: "excerpt from Formation of Government Contracts, Third Edition, by Cibinic & Nash (p. 1107-8): 

In most competitive procurements, the cost of performance is a significant evaluation factor in the source selection decision. As a result, offerors are motivated to make very optimistic estimates of the costs of performance. Although such estimates are adjusted, through cost realism analysis, for the purpose of selecting the winning contractor, contracting officers have a tendency to award contracts based on the cost estimate submitted by the contractor in the competitive process. This is a questionable procedure because it results in a contract funded at too low a level to permit accomplishment of the work. A much better procedure would be to include an estimated cost at a level representing the contracting officer's appraisal of the realistic cost of performance. However, it appears that only a minority of contracting officers follow this procedure, with the result that many CPFF contracts contain estimated costs that are unreasonably low.
 
 

That being the case, why are you planning to award at the proposed estimated cost?

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This is a cost reimbursement contract. You will end up paying for the contractor's actual, allowable, allocated, indirect costs regardless of your estimated cost at award, unless you and the contractor agree to an indirect rate ceiling agreement.

In point of fact, the contractor's indirect rates in its FPRP are simply estimates of future costs (and allocation bases) to be incurred. Exactly like every other aspect of the contractor's cost proposal.

If you are truly concerned about differences between the indirect rates used in the contractor's proposal as compared to its FPRP rates, then you can try to negotiate a rate ceiling. But before you do that, ask yourself how much money is at stake on this contract.

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On what basis did the agency incorporate the FPRP in its evaluation?  The FPRP is merely a proposal and has not been formalized as a Forward Pricing Rate Agreement.  Even then, as H2H pointed out, a FPRA is an estimate and not final rates.

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13 hours ago, Retreadfed said:

Even then, as H2H pointed out, a FPRA is an estimate and not final rates.

Yes, it's an estimate, but so is the estimated cost of a cost-reimbursement contract. A contractor's FPRA proposal would seem to be a pretty good basis for determining what the contractor thinks some costs will be during performance.

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Vern, I agree.  In addition, an FPRA is evidence of what the government thinks certain contractor costs will be at least for part of contract performance.  My point was that even if the contractor and government agree that the FPRA contains valid estimates of future costs, that is not determinative of what the government will actually pay, which is what I interpreted H2 H's point to be.

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