Neurotic

You may be right. I'm thinking about how would the vendor recover OH and G&A when wages are adjusted. Seems like based on the other responses they just don't.

It could potentially be cost plus, but not percentage of cost, since the profit amount does not vary regardless.

The SCA (Now SCLS) Price Adjustment clause provides for adjustment of wages and fringe and the accompanying increases or decreases in social security and unemployment taxes and workers' compensation insurance, but “must not otherwise include any amount for general and administrative costs, overhead, or profit.” G&A and OH is expected to be affected with the increase in wages. I presume the increase in wages will not absorb any OH but, at the same time, the OH might decrease because of the increase in direct labor, if the OH base is DL. The questions are: - How is the vendor supposed to account for any OH not being allocated to the increase in that contract? -Also, some Contracting Officers in our agency are allowing vendors to maintain the OH and G&A percentage unchanged (as originally proposed) when incorporating new WDs but naturally this way OH and G&A dollars will increase with an increase in wages. Is this the proper method to apply to manage the price adjustments under SCA? If not, what are other agencies managing the adjustments or what is the correct method if other. Assume the contract is FFP, the vendor does not perform in any cost type contracts and it’s small business so it’s not CAS covered.

Thanks Joel. That's exactly the point in question. "From what I have been reading, unless the government intends to accept a price as bid, offered, proposed, etc. it would be premature to include the term “fair” as in “fair and reasonable” in a price analysis report. “Fair and reasonable” implies that it is acceptable to both parties. If you plan to negotiate, you don’t know if the other party will accept something other than what was offered." I agree with this statement. The cost/price analyst would not know if the proposed solution, for the proposed price, is fair to the government.

That's our team's role, cost/price analysts (i.e. field support). We are not warranted, do not directly negotiate with offerors/contractors, and are not the award decision makers. We only get to analyze price or cost proposals. I agree that fairness is related to acceptability, so without consideration of other aspects of the proposal (i.e. value for the $) I do not agree with using the term "fair and reasonable" in a cost/price analysis report. That F&R determination cannot be based on price alone. We currently document findings and recommendations and determine reasonableness of a cost and/or price, based on analysis techniques. However, some COs seem to equate reasonableness (as indicated by cost or price analysts techniques) with fair and reasonable and occasionally some COs have even requested cost/price analysts to make the F&R statement in the cost/price report.

Thank you all for the input. We may just be overthinking this a bit!

Joel, thanks for your response. I'm not concerned about the grammar but they way they are used as a term of art. Having said that, I don't think a price analyst should use the term that a price is "Fair and Reasonable" in its report to the CO/KO. The price analysts cannot make this determination. So the question is, if the price analyst uses the term "reasonable price" or just "reasonable", do you believe would be the same as saying "Fair and Reasonable"? Thanks

Is "Reasonableness" the same as "Fair and Reasonable Price"? The subject came up in a conversation about how a cost/price analyst should document findings and conclusions of its price analysis since the Fair and Reasonable determination is made by the CO or KO.

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):

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.

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.

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?

Thank you all for your responses.

One of our COs wants to issue a solicitation (cost type contract) that would assess cost risk and assign a risk rating to cost/price as a stand-alone factor. Below are the risk ratings/criteria proposed for the solicitation. In my opinion the risk should be assessed on the non-price factors (the degree to which these factors are present or not) which are the cost drivers. Other than that I am struggling to articulate in an email why assigning a risk rating to the cost factor would be a bad idea (if it really is). Any thoughts on this? High Risk: Likely to cause significant decreases in performance or increases in schedule or cost, even with increased contractor emphasis and increased Government monitoring. Moderate Risk: Could potentially cause some decreases in performance or increases in schedule or cost. However, increased contractor emphasis and increased Government monitoring may be able to overcome difficulties. Low Risk: Limited potential to cause decreases in performance or increases in schedule or cost. Normal contractor effort and normal Government monitoring will probably be sufficient to overcome difficulties.

Thank you

Vern Thanks for your response. I think that's my point. The provision is inconsistent with what we would like to do (price analysis). The provision seems to mandate that we do realism any time the provision is included: ...The Government will evaluate the plan to assure that it reflects a sound management approach and understanding of the contract requirements. This evaluation will include an assessment of the offeror’s ability to provide uninterrupted high-quality work. The professional compensation proposed will be considered in terms of its impact upon recruiting and retention, its realism, and its consistency with a total plan for compensation... Should I interpret the inclusion of this provision as a requirement to perform realism?

Our office is preparing the evaluation criteria for a T&M contract for computer engineering/software development. It is not commercial. Adequate competition is expected so we would like to do price analysis on the fully burdened rates. There is no current contract for the same effort. It has been determined that clause 52.222-46 -- Evaluation of Compensation for Professional Employees will be included in the contract. Therefore, a question has been raised about whether price analysis on the fully burdened rates would satisfy the language of this clause since it requires to look into compensation (salaries, fringe benefits)...and suggests price realism? We are not asking for cost breakdown in the RFP because do not plan to do realism. We will say in the RFP that we reserve the right to do realism. (and no, we do not say that a price too low may result in no award-because that statement mandates realism. We may have to go back and request more data if the unlikely need for realism arises. Other than this clause, we do not see the need to evaluate further than fully burdened rates per labor category. Even in some cases some contractors do not "build" (salary+FR+OH+fee) the rates, they propose going market rates for the type of labor so there is no breakdown. Have you had any experience on non-commercial competitive labor hour evaluations when 52.222-46 is on the solicitation? Have you analyzed the compensation or have you been able to do price analysis without reviewing compensation?

Thank you all for your input. Very thorough explanation from h2h. For what it's worth, scenario 3 assumed a TCI base without a M&H pool but I didn't not make that clear.

Alright. Assuming their disclosed and approved accounting practice is a TCI G&A base. with that assumption...can they burden the direct materials with a M&H rate and then burden the sum of direct materials and burden with G&A (TCI)? (materials + MH burden+ G&A) have you seen a contractor with a TCI G&A who also has a M&H pool?

Retreadfed We reached out to the ACO and they are looking into their D/S. ACO said that last 2 D/S revisions have not been reviewed. DCMA has worked with this contractor before and has seen their rate structure. That doesn't necessarily mean the cost buildup is correct. ji20874 Not sure why it would make a difference but ...materials are in FFP CLINs. T&M will be used for field service/repairs. Scenario 1 (157,000) is the way the vendor is proposing.

Hi I'm looking at a proposal under the following scenario: Single Source Award/Certified C&P Data required Contract Type FFP (one T&M CLIN) Offeror: CAS covered (submits D/S). IAW Disclosed Practices G&A base is TCI. Offeror has a pool for material handling (M&H) (base - direct materials). Direct materials and the expenses on the M&H pool are part of the G&A base. 1. Here's the way the offeror is burdening materials in the proposal: Lets assume the M&H rate is 5% and G&A is 50% Direct Materials is $100,000 Materials 100,000 M&H 5,000 Subtotal 105,000 G&A 52,500 (subtotal x G&A) Total Material Cost 157,000 2. Here's the way I believe it materials should be burdened when the offeror has an M&H pool (value added G&A): Materials 100,000 M&H 5,000 Subtotal 105,000 G&A 2,500 ( M&H expense x G&A) Total Material Cost 107,500 3. Or if offeror has a TCI base: Materials 100,000 G&A 50,000 Total Material Cost 150,000 So basically they are applying G&A on top of M&H and materials. believe that if the offeror applies an M&H to materials it can apply G&A to the handling expense only and not to the direct material cost. If the offeror has a TCI allocation base for G&A, then it should only apply G&A to direct materials with no M&H. Are they doing this correctly or am I wrong?