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Patrick Mathern

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    Santa Barbara, CA
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    Cost analysis, price analysis, supplier rate and factor audits, business system reviews, training, consulting, exchanging ideas, networking

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  1. This is less of a FAR question and more of a contract question. What does your RFP say? Most contractors state in the RFP to subs that providing a proposal does not entitle them to a contract. Without a contract, there’s no basis for payment.
  2. The DCMA CIG Handbook does cite "uses same production line as commercial items" as support for an assertion of commerciality, but it is not an acceptable basis in and of itself for claiming commerciality. Your first big hurdle is to be able to draw a connection between the item and a commercial market for this or similar items. If you can't do this, the likelihood of withstanding scrutiny of "the customarily used by non-government..." part of the definition is extremely low and it's likely to be rejected as invalid. The supplier should walk through each phrase of the definition they're claiming and provide support on how they meet each.
  3. If your Prime is FFP, use the same with your subs and leave it to them to figure out their indirects and profit. Your budget is what it is...they can either do the job for that price or they can't. Their rates are irrelevant as long as they provide the contractual deliverable. No need to get hung up on "mandating" rates...they are under no obligation to do the job if it loses money for them.
  4. Not sure if this belongs here or on a new thread, but regarding flowing down to subcontractors, are there exceptions to 52.204-24 and 52.204-25 based on either value or commercial item status? Would it apply to a low-value COTS purchase from an online retail site?
  5. So the short answer is "likely yes." If you determine that it's subject to Certified Cost or Pricing Data (exceeds $2M and is not otherwise exempt based on flowdown or exemptions listed in 15.403-1 shown here) then you'll need to write a cost analysis. That analysis covers each cost element separately as well as profit. Taking it one step further, if you need training on cost analysis or want to outsource this effort, this is something we do regularly on behalf of DoD Primes and would be happy to do so for your company as well. Patrick
  6. SpendLogic (https://spendlogic.com) provides tools related to purchasing system approval.
  7. Question: Why would you WANT to reduce G&A? If the answer is that you want your price to be competitive with other bidders, then simply reduce your fee. Avoid screwing around with how you collect and report your costs. G&A costs are real dollars. Reducing the G&A rate means those costs have to be covered somewhere else. Also, if this Prime is eligible for cost-reimbursable work, it likely means that they have an accounting system that has been determined adequate. You don't want to mess that up by playing games with costs.
  8. Hey there Gonzo - If I'm understanding correctly, you're looking to get to the point where you show up on the radar...you haven't been notified by the DCMA of a CPSR yet, correct? If that's the case, don't spend your time shoring up what's already been done, just fix things going forward. CPSR's typically cover a 12 month period that ends as close as is practical to the date the CPSR happens. Time estimates are difficult to determine. You could burn 500 hours just on policies and procedures if you're starting from scratch. In a nutshell, you need to shore up your policies and procedures, implement new templates, and then train everyone on all of the above. Your incremental effort will lie in the policy/procedure/template development as well as training and implementation time. My recommendation: find a consultant that can sell you pre-packaged policies and procedures, then use in-house labor to implement tools that will get your folks up to speed (plug SpendLogic *here*) and train to the procedures and tools that you've implemented.
  9. Lots of good detail in the replies here. For the short and sweet (and actionable) version, here you go: The only way to “justify” this in a PAR is to get additional fact-based information from the supplier and to include these in the price analysis. It’s common to be directed by management to justify a price...but it’s hard to do. I’ve been there and don’t envy you. If these costs truly turn out to be contingency costs (which amounts to profit if they don’t come to fruition,) you’re going to have findings if this package is pulled in a CPSR. In this case, your best bet is to have a price adjustment clause in both your negotiated subcontract as well as your negotiated Prime contract. One last option if these are contingent costs is to write the PAR on the price you truly believe to be fair and reasonable (excluding contingent costs) and then having Management provide an authorization to agree to the price offered. Cite it as “best obtainable” and get a Management signature from someone with sufficient authority to make this call. It’s a CYA game at that point, but will generally be accepted in a CPSR. Patrick
  10. Not sure whether you've gone down this path yet or not, but SpendLogic automates forms for Price Analysis, Commercial Items, and Source Justifications, the "Big 3" in CPSRs. Happy to chat if you're interested in learning more. There's a free trial (full functionality, no credit card required) at https://spendlogic.com/, just click on "Try it Free."
  11. 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.
  12. Neil, in reference to... ...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.
  13. 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.
  14. You’ve mentioned cost analysis here - if you’ve documented adequate competition, per FAR 15.403-1, you alleviate the certification requirements. The contracting officer wouldn’t be required to do a cost analysis unless the competition is somehow determined inadequate. Your cost reimbursable contract type will subject you and your sub to accounting system adequacy questions. That’s potentially a much bigger issue than price reasonableness, although the two go hand in hand.
  15. The only reason I can surmise that the COO would want to talk Contribution Margin is that you're currently heavy on indirect (fixed) costs. If you have had a sudden downturn in business or if you missed winning a large contract that was already figured into annual revenue, then the COO is going to be very concerned with covering that shortfall. H2H is correct in the defective pricing comment, but based on what you're saying, I'd guess (and yes, it's a complete guess) that your COO is covering shortfall rather than building a windfall. As for the difference in Gross versus Contribution, this site does a good job of explaining it: https://www.investopedia.com/ask/answers/122314/what-difference-between-gross-margin-and-contribution-margin.asp An excerpt: "In comparison with gross profit margin, [contribution margin] is a per-item profit metric, as opposed to the total profit metric given by gross margin."
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