I'm doing a peer review of a cost evaluation and part of the write up states "the rates proposed are based on actual salary data and are therefore considered realistic, fair, and reasonable." Is actual salary data or accepted job offers really a basis for determining a labor rate to be realistic, fair, and reasonable?  I could understand using it as a basis for realism to some degree but not necessarily realistic, fair, and reasonable. My thought process: If someone accepted a job for $30/hr and finds out the work is way more involved after their start date, they may ask for $50/hr or quit. Especially if historical data shows the incumbent personnel made $50/hr, I'd say that even though they accepted $30/hr there's a high risk that rate may go up and therefore may not be realistic. On the other side of it, if someone accepted a job for $300/hr that might be realistic but likely it's not going to be fair to the Government or reasonable if other data shows that the position is normally accomplished at $80/hr.

Am I missing something or is the evaluation being performed without any real thought?

Context: This is in a single award IDIQ environment on a cost plus fixed fee task order. The quoted language is standard language they use on all cost evaluation write ups. 

4 minutes ago, Freyr said:

I'm doing a peer review of a cost evaluation and part of the write up states "the rates proposed are based on actual salary data and are therefore considered realistic, fair, and reasonable." Is actual salary data or accepted job offers really a basis for determining a labor rate to be realistic, fair, and reasonable?  I could understand using it as a basis for realism to some degree but not necessarily realistic, fair, and reasonable. My thought process: If someone accepted a job for $30/hr and finds out the work is way more involved after their start date, they may ask for $50/hr or quit. Especially if historical data shows the incumbent personnel made $50/hr, I'd say that even though they accepted $30/hr there's a high risk that rate may go up and therefore may not be realistic. On the other side of it, if someone accepted a job for $300/hr that might be realistic but likely it's not going to be fair to the Government or reasonable if other data shows that the position is normally accomplished at $80/hr.

Am I missing something or is the evaluation being performed without any real thought?

Context: This is in a single award IDIQ environment on a cost plus fixed fee task order. The quoted language is standard language they use on all cost evaluation write ups. 

Seems like there is no cost comparison with any other yardstick - just a statement that the rates match actual cost. They may be realistic for “cost realism” but are they necessarily “fair and reasonable” - based on what comparison?

14 minutes ago, Freyr said:

"the rates proposed are based on actual salary data and are therefore considered realistic, fair, and reasonable."

The rates may in fact be fair and reasonable, but that conclusion does not follow from the stated premise. I would reject that cost evaluation.

16 minutes ago, Freyr said:

IMy thought process: If someone accepted a job for $30/hr and finds out the work is way more involved after their start date, they may ask for $50/hr or quit. Especially if historical data shows the incumbent personnel made $50/hr, I'd say that even though they accepted $30/hr there's a high risk that rate may go up and therefore may not be realistic. On the other side of it, if someone accepted a job for $300/hr that might be realistic but likely it's not going to be fair to the Government or reasonable if other data shows that the position is normally accomplished at $80/hr.

Is certified cost or pricing data (CCOPD) required in this situation?

At the very least, this is a poor explanation.  If no CCOPD requirement applies, then as Joel notes, the author should at least provide an explanation of the data that they used to arrive at this conclusion.  Same applies if CCOPD is required, but the requirement for supporting data is greater. 

As for the details above, you may be going too deep for what's required.  If the author can cite and provide the supporting data (and any calculations) that led to their stated conclusion, that should be sufficient.  

I agree with Vern and Patrick that the costs may be fair and reasonable but the basis stated in the cost evaluation evaluation doesn’t support that, as written.

1 hour ago, Patrick Mathern said:

If the author can cite and provide the supporting data (and any calculations) that led to their stated conclusion, that should be sufficient.  

Patrick, I'm not sure what "supporting data" means. If it means internal data provided by the offeror, then I don't think it's enough to be the basis for a determination of price reasonableness. That was one of the great lessons-learned from the great spare parts pricing scandal of the mid-1980s, which resulted in a wholesale revision of pricing guidance in 1987. That's why incurred costs are not presumed to be reasonable. See FAR 31.201-3(a).

Ultimately, determinations of price reasonableness must  be based on comparisons to market prices, prices obtained through competition, or some other standard of reasonableness. See FAR 15.404-1(b)(2) and the Contract Pricing Reference Guides, Vol. 1.

We are talking about the reasonableness of compensation.  The general standards for reasonableness of compensation are found in FAR 31.201-3 and 31.205-6, particularly (a) and (b).

42 minutes ago, Retreadfed said:

We are talking about the reasonableness of compensation.  The general standards for reasonableness of compensation are found in FAR 31.201-3 and 31.205-6, particularly (a) and (b).

I'm curious about both the reasonableness of this (which you and Vern spoke to well) and the realism aspect of it. Realism should be what we, the Government, expect to pay to the contractor for the requirement right? So if we expect something should cost $100/hr but the contractor hires someone for the job and pays them $50/hr, a reasonable person might expect that $50/hr to go up during performance at some point right? Assuming there's no good explanation on why they're paying them $50 when we thought it'd cost $100. 

 

1 hour ago, Retreadfed said:

We are talking about the reasonableness of compensation.  The general standards for reasonableness of compensation are found in FAR 31.201-3 and 31.205-6, particularly (a) and (b).

FAR 31.201-3 discusses the reasonableness of a cost.

Quote

(a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer's representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

FAR 31.205-6 discusses the allowability of a cost. Reasonableness is an element of allowability.

31.205-6 Compensation for personal services.

Quote

 

(a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle...

(b) Reasonableness -

(1) Compensation pursuant to labor-management agreements. If costs of compensation established under “arm's length” labor-management agreements negotiated under the terms of the Federal Labor Relations Act or similar state statutes are otherwise allowable, the costs are reasonable unless, as applied to work in performing Government contracts, the costs are unwarranted by the character and circumstances of the work or discriminatory against the Government. The application of the provisions of a labor-management agreement designed to apply to a given set of circumstances and conditions of employment (e.g., work involving extremely hazardous activities or work not requiring recurrent use of overtime) is unwarranted when applied to a Government contract involving significantly different circumstances and conditions of employment (e.g., work involving less hazardous activities or work continually requiring use of overtime). It is discriminatory against the Government if it results in employee compensation (in whatever form or name) in excess of that being paid for similar non-Government work under comparable circumstances.

(2) Compensation not covered by labor-management agreements. Compensation for each employee or job class of employees must be reasonable for the work performed. Compensation is reasonable if the aggregate of each measurable and allowable element sums to a reasonable total. In determining the reasonableness of total compensation, consider only allowable individual elements of compensation. In addition to the provisions of 31.201-3, in testing the reasonableness of compensation for particular employees or job classes of employees, consider factors determined to be relevant by the contracting officer. Factors that may be relevant include, but are not limited to, conformity with compensation practices of other firms -

(i) Of the same size;

(ii) In the same industry;

(iii) In the same geographic area; and

(iv) Engaged in similar non-Government work under comparable circumstances.

 

 

28 minutes ago, Freyr said:

Realism should be what we, the Government, expect to pay to the contractor for the requirement right?

Realism is usually a matter of whether a price or cost that the contractor proposes reflects what it will really have to pay to get the job done. Reasonableness is a matter of whether a price or cost is an amount the government should be willing to pay for what it expects to receive.

Just to be clear about what I'm reading in the previous posts, everybody (most people?) would accept that the offeror's proposed rates, which are based on its actual current payroll costs, have been correctly found to be realistic. However, basing proposed rates on actual current payroll costs in an insufficient basis to determine that the proposed rates are fair and reasonable. Do I have that right?

Because, if so, then I agree.

17 minutes ago, here_2_help said:

Just to be clear about what I'm reading in the previous posts, everybody (most people?) would accept that the offeror's proposed rates, which are based on its actual current payroll costs, have been correctly found to be realistic. However, basing proposed rates on actual current payroll costs in an insufficient basis to determine that the proposed rates are fair and reasonable. Do I have that right?

Because, if so, then I agree.

Right. I agree with you. 

5 hours ago, here_2_help said:

Just to be clear about what I'm reading in the previous posts, everybody (most people?) would accept that the offeror's proposed rates, which are based on its actual current payroll costs, have been correctly found to be realistic.

I would not accept that as a general proposition. A labor rate is not realistic just because the offeror is currently paying it. The offeror might have a high turnover rate because it is too low to ensure that the offeror can maintain a stable workforce that will produce acceptable results on time. it may be realistic, or it may be unrealistically low.

On 8/20/2021 at 8:05 AM, Freyr said:

I could understand using it as a basis for realism to some degree

Yeah, Freyr didn’t automatically accept that as realistic and then elaborated… So, yes I agree with Freyr and Vern. 

18 hours ago, Vern Edwards said:

I would not accept that as a general proposition. A labor rate is not realistic just because the offeror is currently paying it. The offeror might have a high turnover rate because it is too low to ensure that the offeror can maintain a stable workforce that will produce acceptable results on time. it may be realistic, or it may be unrealistically low.

Vern, I don't disagree with you -- in principle. However, in reality, I've never seen anybody do that level of analysis (at least from the contractor's perspective). How would that risk be evaluated? By whom? Where are the human resource compensation professionals who are qualified to perform that analysis located? Certainly not at DCAA...