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VipinOwl

Subcontract cost/price analysis as part of CO consent decision?

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3 hours ago, Retreadfed said:

Neil, the reason I asked my earlier question was your reference to business practices.  In regard to complying with the US Code, the relevant statutes (10 U.S.C. 2306a for DoD), do not impose any requirements on contractors or subcontractors.  They only impose requirements on the government.  One of those requirements is to require potential contractors and subcontractors to submit certified cost or pricing data in specified circumstances.  The statutes also impose restrictions on when the government can require the submission of certified cost or pricing data.  Some of these statutory restrictions are implemented in FAR 15.403.   Note that the statutes and FAR only impose restrictions on the government obtaining certified cost or pricing data.  Neither contains a restriction on contractors obtaining cost or pricing data when it is not required by the FAR or statutes.  As has been discussed in this forum before, contractors sometimes have policies that require them to obtain certified cost or pricing data from subcontractors when it is not required by the terms of their contract that implement the statutes and FAR.  Therefore, you as a prime can attempt to require subcontractors to submit certified cost or pricing data when it is not required by the terms of your contract.  Thus, if you have a business practice of requiring a single source subcontractor to submit certified cost or pricing data in regard to a CPFF subcontract when multiple sources were solicited, I see no contractual, statutory or regulatory impediment to doing so, although you may get push back from the subcontractor.

On the other hand, as a prime contractor, I would be surprised if you would try to convince the government that you should submit certified cost or pricing data in regard to a CPFF contract when you are the only offeror although others were solicited. 

Retreadfed, and I would be surprised if the Government awarded the only bidder a high dollar value CPFF contract by obtaining certified cost or pricing data only when prompted by the only bidder!

I referenced only the statute in my response to you because I have not done the research to determine whether the implementing FAR is consistent with the statute. I find both to be very complex and confusing. I would surely welcome some authoritative treatise that explains and analyzes both in detail paragraph by paragraph.

As to the business practice, I still believe that all cost reimbursement contracts are essentially negotiated and therefore "adequate price competition" has no place in those awards whether there are one or more bidders. Therefore, certified cost or pricing data should be required when over the threshold. I could perhaps be persuaded  with a well reasoned case or interpretation otherwise. I personally abhor beating up two or more bidders with requests for cost or pricing data, or negotiating the best value supplier price lower, where there is already adequate price competition as offered.      

 

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For DoD: 

“215.371-3  Fair and reasonable price.

     (a)  If there was “reasonable expectation… that …two or more offerors, competing independently, would submit priced offers” but only one offer is received, this circumstance does not constitute adequate price competition unless an official at a level above the contracting officer approves the determination that the price is reasonable (see FAR 15.403-1(c)(1)(ii)).”

The above reflects DoD policy not to assume that adequate competition exists where multiple firms were solicited but only one responded or where multiple firms expressed an interest but only one responded. 

 

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13 hours ago, joel hoffman said:

It also requires that the contractor submit it and to obtain C&P from subs or prospective subs as applicable.

It requires a sub or prospective sub to submit it, where applicable. 

Joel, go back and read the statute again.  It clearly states that (sub)contractors "shall be required" to do the things you mention.  It does not say that the (sub)contractor is to do these things without first being required to do so.  In both cases, the contracting officer is the one who requires these actions.  This is done by including FAR 52.215-20 in RFPs and 52.215-12 in RFPs and contracts.

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Yes. By Statute, the “head of an agency shall require offerors, contractors,and subcontractors to make cost or pricing data available”, as described in the Statute, where applicable. 

Yes, the provision and applicable clauses are required in negotiated acquisitions by the Code of Federal Regulations

However, the Christian Doctrine has been applied to the Truth in Negotiations Act., when the government omitted mandatory TINA clauses that were applicable to the type of acquisition to implement this deeply ingrained procurement policy. Thus, the implementing clauses were read into the contracts. 

Reference, for instance:  https://www.weitzmorgan.com/2017/06/16/christian-doctrine/

At this point, I’m not sure which scenario or what requirement is under debate in this thread. A CPFF prime received one subcontractor CPFF proposal and one question seemed to be whether or not there was “adequate price competition” to assume that the price is fair and reasonable.  

DoD policy is that the scenario doesn’t automatically constitute adequate price competition to establish a presumption of “fair and reasonable pricing”.

Edited by joel hoffman

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On 5/21/2019 at 10:04 PM, Neil Roberts said:

As to the business practice, I still believe that all cost reimbursement contracts are essentially negotiated and therefore "adequate price competition" has no place in those awards whether there are one or more bidders. Therefore, certified cost or pricing data should be required when over the threshold.

For my own understanding, are we discussing subcontractor awards or prime awards?  It is my understanding that when awarding a CPFF prime contract, even given adequate price competition, cost realism must be performed, and as such cost or pricing data must be obtained, so price analysis alone will not suffice.  Therefore, in the presence of adequate price competition, other than cost or price data shall be submitted, at a minimum, when awarding a CPFF contract, is that correct?

FAR 15.404-3(b)1, states that "a prime contractor shall conduct appropriate cost or price analysis to establish the reasonableness of proposed subcontractor prices".  Question:  Is the prime contractor's determination of a fair and reasonable price for its CPFF subcontractor, held to the same cost or price determination standards as the Government for a CPFF?  For example, if the prime is contemplating a CPFF subcontract award over the threshold, but where adequate price competition is present, shall the government require the contractor to perform cost realism analysis, given the subcontract type?  FAR 15.404-3(c) states, "Any contractor or subcontractor that is required to submit certified cost or pricing data also shall obtain and analyze certified cost or pricing data before awarding any subcontract, purchase order, or modification expected to exceed the certified cost or pricing data threshold, unless an exception in 15.403-1(b) applies to that action."  Will adequate price competition suffice in the case of a CPFF subcontract award?

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1 hour ago, VipinOwl said:

It is my understanding that when awarding a CPFF prime contract, even given adequate price competition, cost realism must be performed, and as such cost or pricing data must be obtained, so price analysis alone will not suffice.

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.

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“Adequate competition” is more indicative of price reasonableness than cost realism in the case of a cost reimbursable competition. Cost realism analysis may be necessary due to pressure or tendency  to understate costs in a competitive CP environment.

9 minutes ago, Patrick Mathern said:

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.

A cost realism analysis is discussed under 15.404-1 (c) as one form of COST analysis. 

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Neil, in reference to...

On 5/21/2019 at 7:04 PM, Neil Roberts said:

As to the business practice, I still believe that all cost reimbursement contracts are essentially negotiated and therefore "adequate price competition" has no place in those awards whether there are one or more bidders. Therefore, certified cost or pricing data should be required when over the threshold. I could perhaps be persuaded  with a well reasoned case or interpretation otherwise.

...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.

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1 minute ago, joel hoffman said:

A cost realism analysis is discussed under 15.404-1 (c) as one form of COST analysis. 

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.

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2 hours ago, VipinOwl said:

 

For my own understanding, are we discussing subcontractor awards or prime awards?  It is my understanding that when awarding a CPFF prime contract, even given adequate price competition, cost realism must be performed, and as such cost or pricing data must be obtained, so price analysis alone will not suffice.  Therefore, in the presence of adequate price competition, other than cost or price data shall be submitted, at a minimum, when awarding a CPFF contract, is that correct? 

FAR 15.404-3(b)1, states that "a prime contractor shall conduct appropriate cost or price analysis to establish the reasonableness of proposed subcontractor prices".  Question:  Is the prime contractor's determination of a fair and reasonable price for its CPFF subcontractor, held to the same cost or price determination standards as the Government for a CPFF?  For example, if the prime is contemplating a CPFF subcontract award over the threshold, but where adequate price competition is present, shall the government require the contractor to perform cost realism analysis, given the subcontract type?  FAR 15.404-3(c) states, "Any contractor or subcontractor that is required to submit certified cost or pricing data also shall obtain and analyze certified cost or pricing data before awarding any subcontract, purchase order, or modification expected to exceed the certified cost or pricing data threshold, unless an exception in 15.403-1(b) applies to that action."  Will adequate price competition suffice in the case of a CPFF subcontract award?

VipinOwl, my view is from the eyes of a prime contractor awarding a CPFF subcontract. Many commentators on this site seem to be from the government side. I am not.  I do not know enough about government practices or interpretations of applicable regulations. So, I have nothing to comment on with respect to your first paragraph, which questions award of CPFF primes.

As to your 2nd paragraph, you mention "fair and reasonable price" and "cost or price determination standards." I am unable to compare industry to government because I do not have enough information. However, I can say that it would not be unusual for the government to question the adequacy of a prime contractor's subcontract transaction conclusion that a price was fair and reasonable. You also asked whether "adequate price competition suffice in the case of a CPFF subcontract award." I do no know how the government might view this. I have already expressed my prime contractor side business practice view on this---no.

 

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11 hours ago, Patrick Mathern said:

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.

Patrick, I performed price and cost analysis for many years on new construction contracts and mods, changes and claims thereto.

Cost realism is a form of cost analysis but generally for a separate  purpose than determining that a price is “fair and reasonable”.

It doesn’t matter that cost realism is also discussed in more detail in a separate paragraph (d). That paragraph merely describes cost realism analysis in more detail. 

Note that “technical analysis” is also an element of and an input into the  cost analysis process, where applicable. It is especially applicable to construction contracting. Its discussed in detail in a separate paragraph (e). A technical analysis is particularly useful in forward pricing negotiations.  It is incorporated into the cost analysis documentation and pre-negotiations objectives. 

In fact, the DCAA auditors always mentioned whether or not we had performed a technical analysis for input to the audit. 

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3 hours ago, joel hoffman said:

Cost realism is a form of cost analysis but generally for a separate  purpose than determining that a price is “fair and reasonable”.

Joel, 

It's interesting you say that.  I never considered cost realism as a tool for other than a fair and reasonable price determination.  Per the FAR, "Use techniques such as, but not limited to, price analysis, cost analysis, and/or cost realism analysis to establish a fair and reasonable price".  I also consider cost realism, a form of cost analysis.

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2 hours ago, VipinOwl said:

Joel, 

It's interesting you say that.  I never considered cost realism as a tool for other than a fair and reasonable price determination.  Per the FAR, "Use techniques such as, but not limited to, price analysis, cost analysis, and/or cost realism analysis to establish a fair and reasonable price".  I also consider cost realism, a form of cost analysis.

I also consider it a tool to determine whether a price is “fair and reasonable”.  However, the Appeals Boards have carved out a distinction by saying, in essence,  that “fair and reasonable” tends to look at the upper end while “cost realism” looks to see if it is unrealistically “low” for the scope and probable effort. 

For cost reimbursement price or cost evaluations, cost realism analysis is usually important for various reasons, as explained in 15.4. Due to the nature of cost plus, the contractor’s primary risk is a lower fee in order to be price competitive. The government’s risk is that it will have to pay more if the contractor uses the budget without completing the effort. Accidental or deliberate lowballing is possible with an unrealistically low price. 

For competitive fixed price evaluations,  what one can do with the results of a cost realism analysis is more restrictive. You can ask the Offeror or contractor to verify their price. If there are discussions, you can raise the issue if you think that they can’t do the work for that price, particularly if you think that it would endanger performance or result in poor relations, corner cutting, trying to make up the difference through excess claims, etc. I’ve seen defaults and even bankruptcies by awarding contracts at unrealistically low prices. Accidental lowballing is not good for either the contractor or the government.

I believe that the position of the boards and courts is that a contractor may assume the risk for lowballing on a firm fixed price contract effort. However, if the government determines that a lowball price would endanger performance, it can take that into consideration in a trade off.  But to declare a low price disqualifying may be a responsibility matter, with all the restrictions and other ramifications. 

For either CP or FP, it is important to ensure that the firm understands the scope and complexity, etc. of the effort, to avoid pricing mistakes. 

There is much more to the concept of cost realism but we don’t need to discuss all the details here. 

It is part of cost analysis for Part 15 pricing procedures when applicable - yes, normally for CP. Sometimes for FP. 

 

 

Edited by joel hoffman

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19 hours ago, VipinOwl said:

It is my understanding that when awarding a CPFF prime contract, even given adequate price competition, cost realism must be performed, and as such cost or pricing data must be obtained, so price analysis alone will not suffice.  Therefore, in the presence of adequate price competition, other than cost or price data shall be submitted, at a minimum, when awarding a CPFF contract, is that correct?

No.  Certified cost or pricing data is required in the circumstances described in FAR 15.403.  Note that 15.403-1 explicitly prohibits contracting officers from obtaining certified cost or pricing data when the conditions listed there exist.  Note that 15.403-1 does not make any distinctions in regard to how the contract is priced.  Thus, if the conditions in 15.403-1 exist, certified cost or pricing data may not be obtained in regard to a cost reimbursement contract.

On the other hand, if the conditions in 15.403-1 exist, data other than certified cost or pricing data may be submitted if that is the only way the contracting officer can determine that the price quoted is fair and reasonable.  This data is analyzed using price analysis.  

In short, there is no blanket requirement that certified cost or pricing data or even data other than certified cost or pricing data must be submitted when the government contemplates award of a cost reimbursement contract.

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VipinOwl, throughout this posting, I have not been quite sure of your understanding about what party is required to comply with a particular FAR /FAR Supplement. For example, if a regulation states throughout it "contracting officer shall...," that regulation is not worded as applying to contractors. Vice versa is also true. I have met many contractor and government professionals that did not know or understanding the difference. FAR 15.403-1(c)(1) is one of those confusing areas. If your focus is adequate price competition regarding a prime contractor's subcontract, has it been your understanding that FAR 15.403-1(c)(1) applies to the transaction, and also applies to a government awarded contract? Just checking with you.

Edited by Neil Roberts
delete sentence

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36 minutes ago, Neil Roberts said:

For example, if a regulation states throughout it "contracting officer shall...," that regulation is not worded as applying to contractors. Vice versa is also true.

I have to disagree.  As has been stated in this forum several times, the FAR does not apply to contractors.  Instead, it applies to government personnel when executing an acquisition.  FAR 1.101 reads in part "The Federal Acquisition Regulations System is established for the codification and publication of uniform policies and procedures for acquisition by all executive agencies."  Contractors are required to comply with the terms of their contracts.  If a contract term incorporates a FAR section, the contractor must comply with that section to the extent it applies to that contract.

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On 5/24/2019 at 12:34 PM, Retreadfed said:

I have to disagree.

Retreadfed, Are you disagreeing with my view about sentence grammar? I don't understand what the disagreement is and its connection to your response. I didn't say anything about whether a contractor is required or not required to comply with the terms of their contract.

Edited by Neil Roberts
revise/spelling

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