2 CFR 200: How to Document Cost Reasonableness for Subrecipients

[Retreadfed]

6 hours ago, GovKor said:

Then we get complaints that we take too long to get a sub on contract

I am confused.  You earlier mentioned you are talking about evaluating a subrecipient which indicates you hold a grant/CA,  however, here you are talking about getting a sub on contract, which indicates you have a contract or a grant under which you are issuing a procurement contract.  Can you clarify?

[GovKor]

15 hours ago, Retreadfed said:

I am confused.  You earlier mentioned you are talking about evaluating a subrecipient which indicates you hold a grant/CA,  however, here you are talking about getting a sub on contract, which indicates you have a contract or a grant under which you are issuing a procurement contract.  Can you clarify?

Yes, my apologies. I mean complaints for taking too long issue a subaward to a subrecipient.  

[GovKor]

21 hours ago, C Culham said:

So I did not go back and re-read the whole thread but this thought occurred to me.  So price/cost analysis is required.   Your contracting department questions its need.  So  does your organization have internal policy to address the need?   If not maybe it is time to create one.

As to the tools to do the analysis I picked this up in a previous read of the thread and my own research/experience.   There are several measures to do the analysis, some you have said are not existent, so maybe a policy again that says here is how you do analysis that allows for acknowledgement that if some methods are not appropriate the policy simply allows for it.   Bottomline - Reasonableness is a subjective effort that if documented should hold up no matter what method or combination of methods were used.  Or in otherwords are you too wrapped around the axle in trying to create an exact analysis effort?

We do have an internal policy (established by the contracting department, which I am a part of) for how to conduct a price/cost analysis. The business units (who are responsible for conducting the analysis) often complain and question whether it's necessary. Meanwhile our Government customer is pushing us to issue subawards faster. Thus my quest began to confirm that the details of our current internal policy IS necessary under 2 CFR 200, and not just "because we've always done it."

Essentially, our internal policy states that when price analysis cannot be used, you must perform a cost analysis. This involves looking at each labor rate, material costs, and travel costs - researching how we determined those to be reasonable and sufficiently documenting the logic and backup documentation for audit purposes. That's what is so time consuming. 

Are you saying an option is to alter our internal process to state that we should conduct a price analysis, and if none of the price analysis techniques are applicable, the price is automatically reasonable (or as you said, simply allow for it)?

[Neil Roberts]

21 minutes ago, GovKor said:

We do have an internal policy (established by the contracting department, which I am a part of) for how to conduct a price/cost analysis. The business units (who are responsible for conducting the analysis) often complain and question whether it's necessary. Meanwhile our Government customer is pushing us to issue subawards faster.

You can consider issuing an undefinitized go ahead transaction.

[GovKor]

11 minutes ago, Neil Roberts said:

You can consider issuing an undefinitized go ahead transaction.

You mean like a letter contract? Wouldn't that remove all negotiation power if we determine that the proposed costs aren't reasonable?

[C Culham]

1 hour ago, GovKor said:

Are you saying an option is to alter our internal process to state that we should conduct a price analysis, and if none of the price analysis techniques are applicable, the price is automatically reasonable (or as you said, simply allow for it)?

Well I did say that, yet it probably was not stated correctly.   

What I meant is if one or more of the price analysis techniques are not appropriate for the situation yet one element is then it could be the basis for the reasonableness determination.  My view seems consistent with what it appears here-2-help was trying to pass along in responses in this thread.   In a read of FAR part 15 (as the template for your policy) and based on your statement that certified cost or pricing data is not required, cost anaylsis is a "may".

I do not know the specifics and that may be the missing link to my simple view but as I read through the thread this from FAR 15.404-1(b)(3) sticks in my head regarding price analysis -"the contracting officer may use any of the remaining techniques as appropriate to the circumstances applicable to the acquisition."

As I drafted this response another thought came to mind.  You suggest that your subawards are slow per your government customer.   So what does your government customer think of your analysis policy/approach other than it is too slow? Or in other words do they think your policy goes too far to reach a reasonable price determination pursuant to the tenants of 2 CFR 200?    

[GovKor]

4 minutes ago, C Culham said:

What I meant is if one or more of the price analysis techniques are not appropriate for the situation yet one element is then it could be the basis for the reasonableness determination. 

Can you elaborate here?

6 minutes ago, C Culham said:

 So what does your government customer think of your analysis policy/approach other than it is too slow? Or in other words do they they think your policy goes too far to reach a reasonable price determination pursuant to the tenants of 2 CFR 200?    

I discussed with a contracting officer (not our assigned CO, but the CO that was appointed our our main point of contact). She agreed that no price analysis technique is applicable for these projects and a cost analysis would be required. She also acknowledged that the amount of cost analysis we are having to perform is incredibly burdensome and she would like to look into what our options are to minimize that work. I'm trying to set up a meeting with her and our assigned CO to discuss (with our Government partner in the room so they can have a better understanding as well of what we're facing) and brainstorm potential alternate processes. However, our CO deals mostly with FAR based contracts and doesn't know the difference between a procurement contract and a subrecipient (I've had to explain multiple times that they are different). 

By the way, I really appreciate your input!

[Neil Roberts]

2 hours ago, GovKor said:

ou mean like a letter contract? Wouldn't that remove all negotiation power if we determine that the proposed costs aren't reasonable?

Yes. You appear to already have sub optimal negotiating power because you have no engaged SME to properly estimate hours and so forth  So, keep total partial funding below 40% of the proposed, include the definitization schedule in the go ahead document and make sure you definitize before then.

[C Culham]

1 hour ago, GovKor said:

Can you elaborate here?

Here is my best shot and I am tying my response, I hope, to your thoughts/comments in your most recent post.

While mentioned with some confusion I am going on the premise that your efforts are subject to 2 CFR 200 and not the FAR.  Yet you are trying to refine your analysis effots using FAR part 15 as your basic template to create an internal policy that meets 2 CFR 200 regarding subrecipient pricing.  As noted as well pricing received does not require a certificate of cost or pricing data.

So from my experience the techniques used in price analysis are - price competition, comparable prices, market prices where the product or service is sold in the commercial market place and even to the Federal government (think GSA Federal Suply Schedules and awards posted in SAM.gov),historical pricing, the cost estimate, comparison to similiar item/effort, parametric estimating, and value analysis.  So if I do not have price competition what then, well sorry for repeating this quote - "the contracting officer may use any of the remaining techniques as appropriate to the circumstances applicable to the acquisition."

Why is the CO pushing cost analysis as "required"?  You have already said that certified cost or pricing data is not required.  In my very simplistic view I am at a loss as to why there is not a price analysis technique(s) that can determine a non-traditional partner and/or small business price is reasonable.   After all the implication is that the entities are doing work for someone!   I lean to another thought here and that is if you can not determine through price analysis that the price is reasonable would you not ask the sub to tell you why it is.  In other words one more technique if you will.

All and all kind of 360 back to here-2-help's comment that I will paraphrase as -proposal (price) evaluation 101 with the reminder thoughts offered as my opinion are based on the limited facts known.  

[GovKor]

32 minutes ago, Neil Roberts said:

Yes. You appear to already have sub optimal negotiating power because you have no engaged SME to properly estimate hours and so forth  So, keep total partial funding below 40% of the proposed, include the definitization schedule in the go ahead document and make sure you definitize before then.

This would take redoing our contracting processes, but could solve the problem and allow the agility we're looking for. Thanks for the suggestion!

[GovKor]

35 minutes ago, C Culham said:

Why is the CO pushing cost analysis as "required"?  You have already said that certified cost or pricing data is not required. 

Let me rephrase: The CO confirmed that, in my shoes, she would not know another way to confirm and document the price as reasonable without performing a cost analysis.

37 minutes ago, C Culham said:

In my very simplistic view I am at a loss as to why there is not a price analysis technique(s) that can determine a non-traditional partner and/or small business price is reasonable.   After all the implication is that the entities are doing work for someone! 

Here's a high level example: we issue a subaward to a vendor to make a prototype. While the company has made prototypes before, they have never made one with a comparable statement of work. In other words, the price for development of prototype XYZ is not reasonably comparable to the development of prototype ABC.

Am I completely overthinking this? Would you compare the two efforts and call it a day? 

[Neil Roberts]

12 hours ago, GovKor said:

Here's a high level example: we issue a subaward to a vendor to make a prototype. While the company has made prototypes before, they have never made one with a comparable statement of work. In other words, the price for development of prototype XYZ is not reasonably comparable to the development of prototype ABC.

Am I completely overthinking this? Would you compare the two efforts and call it a day?

A parametric estimating expert should be able to factfind the proposed at the supplier facility and come up with a written detailed negotiation objective  (which could conclude accept proposed as reasonable) or let you know whether that price analysis technique is not feasible.

Edited November 22, 2024 by Neil Roberts
spelling

[C Culham]

19 hours ago, GovKor said:

Let me rephrase: The CO confirmed that, in my shoes, she would not know another way to confirm and document the price as reasonable without performing a cost analysis.

Here's a high level example: we issue a subaward to a vendor to make a prototype. While the company has made prototypes before, they have never made one with a comparable statement of work. In other words, the price for development of prototype XYZ is not reasonably comparable to the development of prototype ABC.

Am I completely overthinking this? Would you compare the two efforts and call it a day? 

My simplistic view - Say I made UAS prototypes now I am asked to make a USV prototype.  What inputs for the USV development change?  I as the vendor may have to augment my labor force but doesn't my existing labor force (think rate) stay the same?  Could not I  figure out  what the rate difference is for aeronautical engineer versus a aerospace engineer?  Does my accounting practices for capturing direct and indirect change?   And sourcing of new materials changes but wouldn't it be like going from the airplane parts supplier to the boat parts supplier who have market/catalog prices?   

I agree my simplistic view changes if I as a vendor who makes potsticker protypes was asked to make the USV protoype.  On one hand maybe it is a comparison to a similiar item (price analysis) and on the other it is not (cost analysis).

In the end I don't think I can solve all the "depends" for you but hope my thoughts help you figure out the analysis dilemma. 

[GovKor]

1 hour ago, C Culham said:

My simplistic view - Say I made UAS prototypes now I am asked to make a USV prototype.  What inputs for the USV development change?  I as the vendor may have to augment my labor force but doesn't my existing labor force (think rate) stay the same?  Could not I  figure out  what the rate difference is for aeronautical engineer versus a aerospace engineer?  Does my accounting practices for capturing direct and indirect change?   And sourcing of new materials changes but wouldn't it be like going from the airplane parts supplier to the boat parts supplier who have market/catalog prices?   

I agree my simplistic view changes if I as a vendor who makes potsticker protypes was asked to make the USV protoype.  On one hand maybe it is a comparison to a similiar item (price analysis) and on the other it is not (cost analysis).

In the end I don't think I can solve all the "depends" for you but hope my thoughts help you figure out the analysis dilemma. 

I think what you're saying is pretty in line with what we're currently doing - basically a hybrid of price and cost analysis when price analysis in itself isn't applicable. 

[Retreadfed]

On 11/14/2024 at 1:56 PM, GovKor said:

we are required under 2 CFR 200 Subpart E to determine for all costs that they are reasonable.

What type of organization are you, e.g., non-profit, state government, institute of higher education?

[GovKor]

10 minutes ago, Retreadfed said:

What type of organization are you, e.g., non-profit, state government, institute of higher education?

Non-profit

[Retreadfed]

Thanks and I assume you are not one of the non-profits listed in 2 CFR 200 Appendix VIII.