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Unreasonable Profit


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4 minutes ago, ji20874 said:

If you are the contracting officer, let me recommend that you try to arrange for a private meeting with you and the source selection authority.  He or she can give you top cover for any good ideas you might have.  

The SSA for a big program might be a three-star, a four-star, or a service secretary. I doubt there is much chance of a GS-13 to GS-15 CO getting a private meeting, i.e., without the colonel, BG , MG, or SES program manager and maybe the Staff Judge Advocate. You'd have to be a very prestigious CO to be able to make that happen. Moreover, there are going to be a lot of other people, including the contractors, who will have (or want) a say in how it gets done.

Just sayin'.

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1 hour ago, MAY-D-FAR-B-WIT-U said:

What is your recommendation for source selection on these billion dollar weapon system contracts?

Such programs are highly political. I have no overall recommendation for source selections in such programs other than to keep the process as simple as possible. Each service has its own culture and its own norms, which affect point of view and willingness to simplify.

But I will say that everyone is looking to speed up the process, which means that if you can devise an approach that will reduce time to selection without undue risk, this is a good time to try to sell it. We know that design competitions have not worked especially well, but engineers are big players in such programs and they seem to like design competitions. One of the program managers for the B-2 bomber told me that the most important thing is offeror capability, but that's often judged on the basis of design-type information.

Here's the main thing to remember about keeping it simple:

The more evaluation factors you have and the more complex they are, the more information you're going to need from offerors. The more information you get from offerors, the more information you'll have to process. The more information you have to process, the more people and/or time you'll need to process it. The more people involved in the process, the greater the risk of a screwup.

The key to speeding up the source selection process and reducing the risk of protest delays (like on JEDI) lies in the choice of evaluation factors.

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30 minutes ago, ji20874 said:

MDFBWU,

I did a multi-billion dollar source selection many years ago for a satellite system -- all the satellites, all the sensors on the satellites, all the ground stations, and all the data processing for an eighteen-year period of performance.  We had two offerors, both very big names.  We did a two-week oral presentation at each offeror's facility -- ten working days with evaluators from DoD, NASA, and Commerce.  And we allowed for multiple sessions at any given time.  As the contracting officer, I could only attend one session at any time, but I allowed other sessions to happen without me.  I issued a rules of engagement document to set the boundaries for all participants, government and contractor.  This was an oral presentation as part of the proposal submission process as contemplated by FAR 15.102, not a discussions session.

Think broadly.  Think strategically.  Understand your requirement, and then design an acquisition approach that fits.  Please don't use a cookie-cutter approach for an important acquisition.

If you are the contracting officer, let me recommend that you try to arrange for a private meeting with you and the source selection authority.  He or she can give you top cover for any good ideas you might have.  

"As the contracting officer, I could only attend one session at any time, but I allowed other sessions to happen without me."

In our current era of what I call defensive contracting where a lot of decisions are driven by the need to avoid a protest, this will never happen.

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17 minutes ago, Vern Edwards said:

I doubt there is much chance of a GS-13 to GS-15 CO getting a private meeting...

I hear you, Vern -- but it is possible.  My operative verb was "try" so I am okay with my recommendation.  It might be as easy as a statement at the end of an initial briefing to the SSA where the contracting officer says something like, "This concludes my presentation on the center's proposed acquisition strategy -- if you have any guidance for us, we are open to receiving it."

1 minute ago, Vern Edwards said:

The key to speeding up the source selection process and reducing the risk of protest delays (like on JEDI) lies in the choice of evaluation factors.

Right.

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3 minutes ago, MAY-D-FAR-B-WIT-U said:

In our current era of what I call defensive contracting where a lot of decisions are driven by the need to avoid a protest, this will never happen.

Maybe.  But one can be hopeful, and one can continue to share good ideas.

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8 minutes ago, ji20874 said:

I hear you, Vern -- but it is possible. 

I didn't say it is not possible; I said I didn't think there was much chance for the ordinary CO.

I think it would be a good idea if you can get in the door and if you know what you're doing. But having worked for a four-star, I can tell you that even getting 15 minutes ain't easy. His or her immediate staff will see to that, unless you worked for him when he was a major and he thinks highly of you. Even then, very high ranking persons are very political persons, and if the program manager wants in, he or she is likely to get in.

Better bet is to learn to write a good memo, which is something of an art when you're writing for a high-level person. (A person who can write a good memo is worth their weight in platinum.)

But give it a shot. What have you got to lose?

Again, just sayin'

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1 minute ago, Vern Edwards said:

Better bet is to learn to write a good memo, which is something of an art when your writing for a high-level person.

Agreed.  I acknowledge that many contracting officers would be unable to interface with a service secretary or a general on the secretary's or general's terms while providing value to them, whether in person or in writing.  That is part of our problem.

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15 hours ago, MAY-D-FAR-B-WIT-U said:

We are evaluating at the ceiling price to avoid hidden target cost and offerors gaming the FPIF geometry, this is best practice within DoD at least in the last 5 years or so.

This approach is fundamentally flawed, but it seems like that ship has sailed and you're not asking for a better approach.

From what I understand, the problem you're trying to avoid is that two offerors can have the same TEP even though one can propose a higher target profit. 

If that were the case, which offeror's point of total assumption would be lower--the offeror who proposed the higher target profit or the lower target profit?

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1 hour ago, Don Mansfield said:

This approach is fundamentally flawed, but it seems like that ship has sailed and you're not asking for a better approach.

From what I understand, the problem you're trying to avoid is that two offerors can have the same TEP even though one can propose a higher target profit. 

If that were the case, which offeror's point of total assumption would be lower--the offeror who proposed the higher target profit or the lower target profit?

Don,

To be honest, PTA hasn't even come up at all in our incentive geometry discussions. I understand for the purpose of contract administration and risk identification it will be beneficial for the Govt to understand when the contractor is approaching PTA, but for the purpose of a source selection I am not sure what the benefit is to the Government. Offerors obviously want to identify the PTA but not sure when or where to use it from the Gov't perspective.

The PTA for Offerors A, B, and C in the scenario I put up is $121.43, $108.57, AND $102.30 . Using the same scenario (Ceiling 130%, SR 70/30) but changing all target cost to $100 the PTA is $121.43, $114.29, and $110  (Ceiling Price - Target Price/0.7) + target cost. Target profit is $15%, 20%, 23% for A, B, and C. Higher profit equals lower PTA.

The more input I get from this forum, the more I think the answer to my concern is Cost realism on fixed price type contracts aka price realism. My current thinking is the high profit is less of a problem, the problem is using the high profit to cover for understated or hidden target costs related to buy-in.

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16 minutes ago, MAY-D-FAR-B-WIT-U said:

Don,

To be honest, PTA hasn't even come up at all in our incentive geometry discussions. I understand for the purpose of contract administration and risk identification it will be beneficial for the Govt to understand when the contractor is approaching PTA, but for the purpose of a source selection I am not sure what the benefit is to the Government. Offerors obviously want to identify the PTA but not sure when or where to use it from the Gov't perspective.

The PTA for Offerors A, B, and C in the scenario I put up is $121.43, $108.57, AND $102.30 respectively. The more input I get from this forum, the more I think the answer to my concern is Cost realism on fixed price type contracts aka price realism. My current thinking is the high profit is less of a problem, the problem is using the high profit to cover for understated or hidden target costs related to buy-in.

The reason I asked is because if you considered the difference in PTA between offerors proposing different amounts for target profit, you may not be as concerned about an offeror proposing an "excessive" profit. Think it through.

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18 hours ago, MAY-D-FAR-B-WIT-U said:

The more I structure my FPIF the more I feel like there is always a hole to be exploited in a FPIF contract.

What if instead of the Government structuring the FPIF, offerors were allowed to propose the parameters (target cost, target profit, ceiling price, and share ratios)? Let the invisible hand of competition do its thing?

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22 hours ago, Don Mansfield said:

The reason I asked is because if you considered the difference in PTA between offerors proposing different amounts for target profit, you may not be as concerned about an offeror proposing an "excessive" profit. Think it through.

Yes, i found the inverse relationship between PTA and profit very intriguing. I will spend the weekend researching PTA a bit more.

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22 hours ago, Don Mansfield said:

What if instead of the Government structuring the FPIF, offerors were allowed to propose the parameters (target cost, target profit, ceiling price, and share ratios)? Let the invisible hand of competition do its thing?

We considered this but there is a concern that this may create too may apples to oranges comparison on proposed prices. The alternative I like is creating a ceiling on the ceiling price and profit %. Offerors obviously will propose their target price and the contract will stipulate the share ratios. But historically Offerors always propose to whatever ceiling we stipulate.

Truly appreciate your time and input.

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29 minutes ago, MAY-D-FAR-B-WIT-U said:

We considered this but there is a concern that this may create too may apples to oranges comparison on proposed prices.

There is a way to make it apples to apples. But one would have to understand cumulative distribution functions, expected value, and calculus. You're probably not going to cover that in an introductory probability and statistics course, so most DoD contracting folks and cost/price analysts wouldn't understand it without some training. Some cost estimators may have such knowledge. I understand conceptually, but wouldn't attempt the number crunching without some help. 

The key is to not think of an offeror proposing a price--rather, they are proposing a range of possible prices and each of those prices has a corresponding probability. If you think of it that way, then it becomes an expected value problem.

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40 minutes ago, Don Mansfield said:

There is a way to make it apples to apples. But one would have to understand cumulative distribution functions, expected value, and calculus. You're probably not going to cover that in an introductory probability and statistics course, so most DoD contracting folks and cost/price analysts wouldn't understand it without some training. Some cost estimators may have such knowledge. I understand conceptually, but wouldn't attempt the number crunching without some help. 

Another reason not to use an FPI(F) or FPI(S) contract.

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