Cost Realism Analysis Scenario

[Don Mansfield]

Scenario: A contracting officer is evaluating competitive proposals for a cost-reimbursement contract. As part of the evaluation, they will have to perform a cost realism analysis of the offerors' cost proposals. The solicitation did not specify that the Government would use any particular method of cost realism analysis--it just said that the Government would conduct cost realism and may adjust proposed costs for purposes of evaluation. The solicitation stated that the Government would use the tradeoff process to determine best value.

The contracting officer receives two offers and determines the most probable cost for each. The results of their cost realism analysis are as follows:

	Proposed Cost	Most Probable Cost
Offeror A	$100 million	$105 million
Offeror B	$103 million	$110 million

The offerors are equal concerning nonprice factors, so the award decision comes down to cost.

Questions:

1. Assuming the contracting officer's determination of the most probable cost is flawless, do they have enough information to determine the best value?

2. If not, what additional information should they consider?

I'm not interested in challenges to the hypothetical or critiques of the problem. If you think you need more information just ask.

[Vern Edwards]

59 minutes ago, Don Mansfield said:

The offerors are equal concerning nonprice factors...

"Equal" in what?

What are the sources of cost uncertainty?

[Don Mansfield]

20 minutes ago, Vern Edwards said:

"Equal" in what?

There's no distinction between the offerors on nonprice factors. The best value decision comes down to cost.

I ask that you sit this one out.

 

[Vern Edwards]

9 minutes ago, Don Mansfield said:

I ask that you sit this one out.

Will do!

[C Culham]

2 hours ago, Don Mansfield said:

1. Assuming the contracting officer's determination of the most probable cost is flawless, do they have enough information to determine the best value?

No.

2 hours ago, Don Mansfield said:

2. If not, what additional information should they consider?

They (who ever that is) need to know what the solicitation states about the relative importance of cost/price to the noncost/price factors/subfactors.

[joel hoffman]

If there is no distinction in the non-price factors and we are to assume that the contracting officer's determination of the most probable cost is flawless, what basis would the KO have to award a potentially higher cost contract?

Missing information here might be past performance and experience track records of the competing firms for completing similar work and for controlling costs on CR contracts,  what type of CR contract and details concerning the proposed fees. Are the “proposed costs” and “most probable costs” inclusive of fees? 

[WifWaf]

13 hours ago, Don Mansfield said:

There's no distinction between the offerors on nonprice factors. The best value decision comes down to cost.

1. No.

2. A Direct Costs-only version of the above table.  If this comparison shows that B's MPC is lowest, "best value" to the client will have to be with B.  The client gets more value for B since B's indirects are lower.

[Don Mansfield]

14 hours ago, C Culham said:

They (who ever that is) need to know what the solicitation states about the relative importance of cost/price to the noncost/price factors/subfactors.

I don't see how that would be relevant at this point, but you can make an assumption if you'd like.

[Don Mansfield]

13 hours ago, joel hoffman said:

If there is no distinction in the non-price factors and we are to assume that the contracting officer's determination of the most probable cost is flawless, what basis would the KO have to award a potentially higher cost contract?

That's the question (in other words).

13 hours ago, joel hoffman said:

Missing information here might be past performance and experience track records of the competing firms for completing similar work and for controlling costs on CR contracts

Assume no distinction between offerors.

13 hours ago, joel hoffman said:

Are the “proposed costs” and “most probable costs” inclusive of fees? 

Ignore fees in this problem. 

[Don Mansfield]

2 hours ago, WifWaf said:

A Direct Costs-only version of the above table.  If this comparison shows that B's MPC is lowest, "best value" to the client will have to be with B.  The client gets more value for B since B's indirects are lower.

I don't follow. If B's direct costs were lower, wouldn't their indirect costs be higher?

Indirect costs = Total costs - Direct Costs

 

[joel hoffman]

 

38 minutes ago, Don Mansfield said:

That's the question (in other words).

Assume no distinction between offerors.

Ignore fees in this problem. 

Ok, thanks. I don’t think the KO can justify any value in paying more when the non-price considerations are essentially equal and the most probable cost varies by $5 million and even the proposed cost estimates vary by $3 million.

Unless there is some provision in the solicitation for some type of price preference.  In that event, I’d be willing to call Elon Musk. We can’t afford to maintain the Status Quo deficit.

[Don Mansfield]

41 minutes ago, joel hoffman said:

 

Ok, thanks. I don’t think the KO can justify any value in paying more when the non-price considerations are essentially equal and the most probable cost varies by $5 million and even the proposed cost estimates vary by $3 million.

Unless there is some provision in the solicitation for some type of price preference.  In that event, I’d be willing to call Elon Musk. We can’t afford to maintain the Status Quo deficit.

Thank you for your response 

[C Culham]

1 hour ago, Don Mansfield said:

I don't see how that would be relevant at this point, but you can make an assumption if you'd like.

Okay I will go away but I am in a quandry as to how you

19 hours ago, Don Mansfield said:

would use the tradeoff process to determine best value.

And how the CO would

19 hours ago, Don Mansfield said:

 have enough information to determine the best value?

without knowing the evaluation factors other than cost or price, when combined, are significantly more important than, approximately equal to, or significantly less important than cost or price.  Best value is not a determination made on cost realism analysis alone something I do not is an assumption but supported by regulation and case law.

[Don Mansfield]

25 minutes ago, C Culham said:

Okay I will go away but I am in a quandry as to how you

And how the CO would

without knowing the evaluation factors other than cost or price, when combined, are significantly more important than, approximately equal to, or significantly less important than cost or price.  Best value is not a determination made on cost realism analysis alone something I do not is an assumption but supported by regulation and case law.

I don't agree, but let's not get sidetracked. I'm saying feel free to condition your answer with "Assuming nonprice factors are more important than cost..." or something similar.

[Vern Edwards]

The Cost Realism Handbook is 317 pages long.

https://www.dau.edu/sites/default/files/Migrated/ToolAttachments/Cost_Analysis_Guide_N00024-71-C-1382_Combined_OCR.pdf

 

[Don Mansfield]

I love the comics. They summarize the topics well. Great design overall.

Strangely, the words "realism" and "realistic" only appear in the title. It's more like a cost analysis handbook.

[C Culham]

On 3/13/2025 at 2:32 PM, Don Mansfield said:

1. Assuming the contracting officer's determination of the most probable cost is flawless, do they have enough information to determine the best value?

 

21 hours ago, Don Mansfield said:

"Assuming nonprice factors are more important than cost..."

Yes.  Reference FAR FAR 15.404-1(a)(1).

[Vern Edwards]

You can't answer Don's question intelligently by citing regulations.

Go back to his scenario and THINK ANALYTICALLY! Like a professional business decision maker.

This is an opportunity to have an intelligent discussion about an important topic instead of just to answer junior varsity questions.

Maybe it's time to rethink this forum.

[formerfed]

Just because offerors are rated equal doesn’t necessarily mean selection boils down to lowest cost.  The tradeoff decision needs to examine the relative individual strengths and weaknesses/deficiencies of both A and B.

[joel hoffman]

6 hours ago, formerfed said:

Just because offerors are rated equal doesn’t necessarily mean selection boils down to lowest cost.  The tradeoff decision needs to examine the relative individual strengths and weaknesses/deficiencies of both A and B.

if that were the case, yes you are correct. Per Don Mansfield that isn’t the case here. 

Don said more than once here in his scenario that there is no distinction between the offerors on non-price factors/proposals

Did you read this thread???

On 3/13/2025 at 6:32 PM, Don Mansfield said:

There's no distinction between the offerors on nonprice factors. The best value decision comes down to cost. 

Joel Hoffman said: Missing information here might be past performance and experience track records of the competing firms for completing similar work and for controlling costs on CR contracts.

Don Mansfield answered:

On 3/14/2025 at 10:21 AM, Don Mansfield said:

Assume no distinction between offerors

[joel hoffman]

Deleted

[Josh Houston]

I’d want to know what drove the increases in probable cost for each offeror. Adjustments of a few dollars apiece to various labor rates over a five-year stretch is one thing. Adjusting the cost of a single cost element that is critical to contract performance northward by hundreds of thousands of dollars because the offeror neglected to account for it or price it appropriately is a more concerning issue.

In the case of the latter example, this may already be baked into the technical evaluation. But the language of the scenario doesn’t make that clear.

[Don Mansfield]

3 hours ago, Josh Houston said:

I’d want to know what drove the increases in probable cost for each offeror. Adjustments of a few dollars apiece to various labor rates over a five-year stretch is one thing. Adjusting the cost of a single cost element that is critical to contract performance northward by hundreds of thousands of dollars because the offeror neglected to account for it or price it appropriately is a more concerning issue.

In the case of the latter example, this may already be baked into the technical evaluation. But the language of the scenario doesn’t make that clear.

1. Assume Offeror A's adjustment was due to a few dollars apiece over to various labor rates over five years and Offeror B's adjustment is due to a single cost element critical to performance that they forgot to account for. Now what is your answer?

2. If you assume the opposite, does your answer change?

[Vern Edwards]

@Josh Houston Thanks for a thoughtful and professional response!

 

[C Culham]

23 hours ago, Vern Edwards said:

You can't answer Don's question intelligently by citing regulations.

Go back to his scenario and THINK ANALYTICALLY! Like a professional business decision maker.

This is an opportunity to have an intelligent discussion about an important topic instead of just to answer junior varsity questions.

Maybe it's time to rethink this forum.

What?  The given scenerio states that the "most probable cost is flawless' based on a cost realism analysis so tell me what else analytically is there to evaluate?  Seriously!!!!

While I appreciate Josh's response  I would suggest very strongly that if he were the CO that conducted the cost realism as the scenerio states then I would hope it would include a narrative that would explain its flawless effort.  Such a narrative would be available for the "they" whomever they are and would be the only thing needed to answer why the cost realism was flawless. 

And while I am at it -  I thought you were stepping out and the thread was suppose to not get sidetracked with stuff like a link to a policy, so why not regulation!  All pointing to an end in Forum anyways as it departs from the fairness it once was arbitrated.