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Supplier Proposal Adequacy Guidelines

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• Survey conducted regarding the ability to generate TINA FAR-compliant proposals• More than 39 percent of respondents stated they find it difficult or very

difficult to develop TINA-compliant proposals

• Areas noted as most challenging include• Consolidated Bill of Material

• Time-phased labor hours

• Basis of Estimate (BOE)

• Supporting rates (labor, overhead, G&A)

• More than 62 percent of respondents stated primes are not very clear on proposal compliance requirements in their Requests for Proposals (RFPs)

• More than 80 percent stated they would find training on the requirements of building a compliant supplier proposal in accordance with FAR helpful

AIA Member Feedback

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Agenda:

• Module 1:TINA-Compliant Proposal Overview, Cover Sheet, Index and Cost Element Breakdown

• Module 2:Material, Consolidated BOM, ODC, NRE and Subtier Cost Analysis Requirements

• Module 3:Labor, Rates, Unallowables and Basis of Estimate (BOE)

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Training Objectives

TINA-Compliant ProposalRequired Items

Module FAR Reference

Cover Sheet – SF1411 or equivalent Module I FAR 15.408, Table 15-2, I.A.

Index Module I FAR 15.408, Table 15-2, I.B.

Cost Element Breakdown Module I FAR 15.408, Table 15-2, I.D.

Summary Cost Element Breakdown Module I FAR 15.408, Table 15-2, I.E.

Material (Including Consolidated BOM) Module II FAR 15.408, Table 15-2, II.A.

ODC Module II FAR 15.408, Table 15-2, II.D.

NRE Module II FAR 15.408, Table 15-2, II

Labor Module III FAR 15.408, Table 15-2, II B.

Rates Module III FAR 15.408, Table 15-2, II.C.

• Provide an overview of the proposal process, including applicable FAR (Federal Acquisition Regulations) and DFARS (Department of Defense FAR Supplement) definitions and requirements for submitting certified cost or pricing data

• Identify the general requirements for an adequate proposal

• Provide guidance on assessing the adequacy of the data supporting estimates for the individual cost elements proposed

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Module 1

TINA-Compliant Proposal Overview, Cover Sheet, Index and Cost Element Breakdown

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Why Cost and Price Analysis Is done

* Effective May 29, 2013, Truth in Negotiations Act (TINA) reclassified as “Truthful Cost or Pricing Data” (ref. Public Laws 107-217 and 111-350)

** Current TINA Threshold set June 30, 2018. Every 5 years the FAR Councils revisit the various FAR acquisition thresholds and update them to account for inflation.

(1) Exceptions outlined in 10 U.S. Code § 2306a – Cost or pricing data: truth in negotiations

• Armed Services Procurement Act of 1947 created what we now know as the Federal Acquisition Regulations (FAR). The intention of subset FAR Part 15 is to put the government, the prime contractor and all of its subcontractors on an equal and level playing field so that all of us, as taxpayers, are protected.

• Truth in Negotiation Act (TINA)* — Requires both prime and subcontractors sole/single-source suppliers with contracts more than $2,000,000** (1) and no regulatory exception applies to certify the cost data submitted under the solicitation.

• Ensure regulatory compliance for government contracts regarding required cost analysis activities and related contracting actions to support:• Estimating and Pricing in the preparation of prime contract proposals

• Business and Corporate Supply Chain in purchasing

• Business and Corporate Supply Chain in the negotiation and implementation of strategic and long-term agreements

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Definitions

• What is a Proposal?• FAR 31.001 defines a proposal as any offer or other submission used as a basis for pricing a contract, contract modification or

termination settlement or for securing payments thereunder. This resource document focuses only on adequacy requirements for proposals that require offerors to submit certified cost or pricing data.

• Under certain conditions, certified cost or pricing data are not required.

• Certified Cost or Pricing Data • FAR 2.101 defines certified cost or pricing data as “cost or pricing data” that were required to be submitted in accordance with

FAR 15.403-4 and 15.403-5 and have been certified, or are required to be certified, in accordancewith FAR 15.406-2.

• Far 2.101 further defines “cost or pricing data” as all facts that, as of the date of price agreement or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price, prudent buyers and sellers would reasonably expect to affect price negotiations significantly. • Certified cost or pricing data are factual, not judgmental and are verifiable. While this data does not indicate the accuracy of the offeror’s

judgment about estimated future costs or projections, it does include the data forming the basis for that judgment.

• Keep in mind that certified cost or pricing data are more than historical accounting data; they are all facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred.

• Some of the most important aspects of certified cost or pricing data are:

• The data must be information that could reasonably be expected to significantly affect negotiations to qualify ascost or pricing data

• Certified cost or pricing data must be factual and verifiable

• Facts forming the basis for offeror judgments qualify as certified cost or pricing data even though the judgments themselves do not qualify as certified cost or pricing data

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Definitions

• Certified Cost or Pricing Data (continued)• Certified cost or pricing data also includes such factors as:

• Vendor quotations

• PO history, negotiation decrement history

• Nonrecurring costs • Changes in production methods and in production or purchasing volume

• Data supporting projections of business prospects and objectives and related operations costs

• Unit-cost trends such as those associated with labor and productivity efficiency • Make-or-buy decisions

• Estimated resources to attain business goals

• Information on management decisions that could have a significant bearing on costs

• Offer – a response to a solicitation that, if accepted, would bind the offeror to perform the resultant contract.

• Offeror – The bidder to a solicitation. An offeror can be a contractoror a subcontractor.

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Responsibility

• Responsibilities for Adequacy: • The offeror is solely responsible for preparing and submitting an adequate proposal

and supporting its proposed costs. When the proposal is submitted, it should be complete and ready for audit.

• FAR 15.403-4(b) further emphasizes this responsibility by requiring offerors to certify that, as of the date of agreement on price, the certified cost or pricing data submitted in support of its proposals are current, accurate and complete. • The offeror bears the burden of proof in establishing reasonableness of proposed costs.• The basis and rationale for all proposed costs should be provided as part of the proposal so

that the government can place reliance on the information as current, accurate and complete.• The requirements placed on prime offerors also apply to subcontractors. When the

government requires the prime to submit certified cost or pricing data, its suppliers must also submit certified cost or pricing data to the prime contractor (or next-higher-tier subcontractor), as appropriate. The exceptions to the certified cost or pricing data requirements for offerors also apply to the offeror’s subtier suppliers. Certified cost or pricing data submittal requirements for the offeror’s subtier suppliers are described specifically in FAR Part 15.404-3(c)(1).

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Responsibility

• Responsibilities for Adequacy (continued):• The contractor is the decision maker in the procurement process. For

proposals requiring the offeror or subcontractor to furnish certified cost or pricing data, the contractor’s buyer must determine: • If the certified cost or pricing data the offeror submits is acceptable as a basis for

negotiating a fair and reasonable price

• Whether the proposal complies with the requirements of FAR 15.4; in particular FAR 15.408,Table 15-2

• If the offeror will be able to perform the contract

• What clauses to include in the contract

• An acceptable contract price

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TINA Exception Criteria

• FAR 15.403-1(b) prohibits the PCO from requiring offerors to submit certified cost or pricing data:• If the price is based on adequate competition • If the price is set by law or regulation • For the acquisition of a commercial item • When the head of the contracting activity grants a waiver

• If a waiver is granted to a prime contractor such that certified cost or pricing data are not required, the contractor is viewed as having submitted certified cost or pricing data. However, because the waiver is with the contractor and not the subcontractor(s), subcontractors are still required to submit certified cost or pricing data if the value is expected to exceed the certified cost or pricing threshold.(Note: A waiver is not the same as an exemption or exception.)

• For modifications to contracts or subcontracts for commercial items

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General TINA Proposal Requirements

TINA-Compliant Proposal

Required ItemsModule FAR Reference

Cover Sheet – SF1411 or equivalent Module I FAR 15.408, Table 15-2, I.A.

Index Module I FAR 15.408, Table 15-2, I.B.

Cost Element Breakdown Module I FAR 15.408, Table 15-2, I.D.

Summary Cost Element Breakdown Module I FAR 15.408, Table 15-2, I.E.

Material (Including Consolidated BOM) Module II FAR 15.408, Table 15-2, II.A.

ODC Module II FAR 15.408, Table 15-2, II.D.

NRE Module II FAR 15.408, Table 15-2, II

Labor Module III FAR 15.408, Table 15-2, II B.

Rates Module III FAR 15.408, Table 15-2, II.C.

• Cover Sheet

• Index of Cost or Pricing Data

• Cost Elements

• Formats for Submission of Line Items Summaries

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• Cover Sheet: FAR 15.408, Table 15-2 requires the first page of the pricing proposal to contain the following:• Solicitation number, contract and/or modification number;• Name and address of offeror;• Name and telephone number of point of contact;• Name of contract administration office (if available);• Type of contract action (that is, new contract, change order, price revision/redetermination, letter

contract, unpriced order or other);• Proposed cost; profit or fee and total price – maximum proposal value.• Is the use of government property required?• Is the organization subject to Cost Accounting Standards (CAS)? – see details in FAR 15.408, Table

15-2, I.A. (8).• The statement designated in FAR 15.408, Table 15-2, I.A. (9).• Date of submission• Name, title and signature of authorized representative• Offeror must state that certified cost or pricing data is included in the proposal

Cover Sheet Requirements

MOST CONTRACTORS USE GOVERNMENT FORM SF1411

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1. SOLICITATION/CONTRACT/MODIFICATION FORM APPROVED

CONTRACT PRICING PROPOSAL COVER SHEET NO. OMB NO.

9000-0013

NOTE: This form is used in contract actions if submission of cost of pricing data is required.

2. NAME OF ADDRESS OF OFFEROR 3A. NAME AND TITLE OF OFFEROR'S POINT 3B. TELEPHONE NO.

OF CONTACT

4. TYPE OF CONTRACT ACTION (Check)

A. NEW CONTRACT D. LETTER CONTRACT

B. CHANGE ORDER E. UNPRICED ORDER

C. PRICE REVISION/ F. OTHER (Specify)

REDETERMINATION

5. TYPE OF CONTRACT (Check) 6. PROPOSED COST (A+B=C)

FFP CPFF CPIF CPAF A. COST B. PROFIT/FEE C. TOTAL

FPI OTHER (Specify)

7. PLACES(S) AND PERIOD(S) OF PERFORMANCE

8. List and reference the identification, quantity and total price proposed for each contract line item. A line item cost breakdown supporting this recap is

required unless otherwise specified by the Contracting Officer.(Continue on reverse, and then on plain paper, if necessary. Use same headings.)

A. LINE ITEM NO. B. IDENTIFICATION C. QUANTITY D. TOTAL PRICE E. REF.

9. PROVIDE NAME, ADDRESS, AND TELEPHONE NUMBER FOR THE FOLLOWING (If available)

A. CONTRACT ADMINISTRATION OFFICE B. AUDIT OFFICE

10. WILL YOU REQUIRE THE USE OF ANY GOVERNMENT PROPERTY 11A. DO YOU REQUIRE GOVERN- 11B. TYPE OF FINANCING

IN THE PERFORMANCE OF THIS WORK? (If "Yes," identify) MENT CONTRACT FINANCING (Check one)

TO PERFORM THIS PROPOSED ADVANCE PROGRESS

YES NO CONTRACT? (If "Yes," complete PAYMENTS PAYMENTS

Item 11B)

YES NO GUARANTEED LOANS

12. HAVE YOU BEEN AWARDED ANY CONTRACTS OR SUBCONTRACTS 13. IS THIS PROPOSAL CONSISTENT WITH YOUR ESTABLISHED ESTI-

FOR THE SAME OR SIMILAR ITEMS WITHIN THE PAST 3 YEARS? MATING AND ACCOUNTING PRACTICES AND PROCEDURES AND

(If "Yes," identify item(s), customer(s), and contract number(s)) FAR PART 31 COST PRINCIPLES? (If "No," explain)

YES NO YES NO

A. WILL THIS CONTRACT ACTION BE SUBJECT TO CASB REGULATIONS? B. HAVE YOU SUBMITTED A CASB DISCLOSURE STATEMENT

(If "No," explain in proposal) (CASB DS-1 OR 2)? (IF "Yes," specify in proposal the office to which

submitted and if determined to be adequate)

YES NO YES NO

DCMC, Burlington MA

C. HAVE YOU BEEN NOTIFIED THAT YOU ARE OR MAY BE IN NON- D. IS ANY ASPECT OF THIS PROPOSAL INCONSISTENT WITH YOUR

COMPLIANCE WITH YOUR DISCLOSURE STATEMENT OR COST DISCLOSED PRACTICES OR APPLICABLE COST ACCOUNTING

ACCOUNTING STANDARDS? (If "Yes," explain in proposal) STANDARDS? (If "Yes," explain in proposal)

YES NO YES NO

15. NAME AND TITLE (Type) 16. NAME OF FIRM

17. SIGNATURE 18. DATE OF SUBMISSION

NSN 7540-01-142-9845 1411-102 STANDARD FORM 1411 (REV. 9-95)

Prescribed by GSA

This proposal reflects our estimates and/or actual costs as of this date and conforms with the instructions in FAR 15.403-5(b)(1) and Table 15-2.

By submitting this proposal, we grant the Contracting Officer and authorized representative(s) the right to examine, at any time before award,

those records, which include books, documents, accounting procedures and practices, and other data, regardless of type and form or whether

such supporting information is specifically referenced or included in the proposal as the basis for pricing, that will permit an adequate evaluation

of the proposed price.

-$ -$ -$

1. Solicitation No., Mod

No.

2. Name, Address Offeror3. Name/telephone of point of contact (POC)

4. Name of contract administration office

5. Contract type 6. Proposed cost, fee and price

7. Government property required?

8. Is organization subject to CAS?

9. FAR 15.408, Table 15-2, I.A. (9) Statement

10. Date of submission11. Name, title and signature of authorized representative

* If you use the SF1411 form Offeror needs to add statement “Certified cost or pricing data is included in proposal” somewhere on the form

Proposals should be prepared and submitted in accordance with disclosure statements

Cover Sheet RequirementsCover Sheet Form SF1411* or Equivalent

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Cover Sheet Requirements

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▪ It should include the following:

– Title of information being referenced (summary cost element breakdown, material, labor, etc.).

– Location in the proposal (page number or file name and page if located in a separate file).

– Cost element supporting

Example: FAR Index of Certified Cost or Pricing Data

Index should list all types of cost data included in the proposal submittal.

Cost Data Provided Location of Data Cost Element Supporting

Cost Elemental Breakdown Proposal Section 1 Total Cost/Price

Consolidated Bill-of-Material (CBOM) Proposal Section 2 Material

Vendor Quotations Proposal Section 2 Material

PO History Proposal Section 2 Material

Time-Phased Labor Proposal Section 3 Labor

Labor BOEs Proposal Section 3 Labor

Labor Actuals Proposal Section 3 Labor

Travel Details Proposal Section 4 ODC

Travel Calculations Proposal Section 4 ODC

Travelocity Quotes Proposal Section 4 ODC

Interdivisional Cost Elemental Breakdown Proposal Section 5 IWO

Interdivisional Quote Proposal Section 5 IWO

Interdivisional CBOM Proposal Section 5 IWO

Interdivisional Labor BOE Proposal Section 5 IWO

Interdivisional Travel Details Proposal Section 5 IWO

Index Requirements

• Index of Certified Cost or Pricing Data• Include an index that references where the supporting data for your estimate is located in

the proposal.

Summary cost element breakdowns and consolidated Bills of Material (BOMs)are the two most frequently missed items in supplier proposals

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Cost Element Breakdown by Line Item

* Interorganizational Transfers (IOTs) are typically included as either material or a separate category of cost under Other Direct Cost. Regardless of where

they are listed, for noncompetitive/noncommercial Interorganizational Transfers priced at cost, cost volume detail is required.

(1) Exceptions outlined in 10 U.S. Code § 2306a – Cost or pricing data: truth in negotiations

• For example, assume your proposal includes the following three line items:

• The supplier would need to provide separate cost element breakdowns for Parts ABC, ABB and the NRE (reference example slide 20)

• There may be slight differences due to rounding

• Cost Element Breakdown by Line Item• Cost elements include:

• Direct labor hours and cost by category

• Material [inclusive of any IOT (Interorganizational Transfer*) and subtiers greater than $2,000,000 (1)]

• Subcontracts

• Other Direct Costs (ODC)

• Direct and Indirect Rates

• A cost element breakdown is required for each proposed line item. If the proposal covers multiple price points or multiple years, a cost element breakdown will be required for each price point for each year.

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Interorganizational Transfers

• Interorganizational transfers (IOTs), are defined as materials, supplies or services sold or transferred between any divisions, subsidiaries or affiliates of an offeror under a common control.• Competitive IOTs: the criteria described for competitive material or

subcontract items also governs competitive IOTs. • For IOTs priced at other than cost, FAR 15.408, Table 15-2 also requires an explanation of

the pricing method.

• Noncompetitive IOTs: for noncompetitive IOTs priced at cost, cost volume detail is required.

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Nonrecurring Expenses (NRE)

• Nonrecurring Expenses (NRE)• NRE refers to one-time costs that are normally not seen from proposal to proposal.

• Examples of NRE are as follows:

• Special tooling

• Special test equipment

• Equipment refurbishment

• Hours and materials associated with increasing throughput capacity

• Hours and materials to research, develop, design and test new processes

• NRE should be segregated as a separate line item and not included as part of the recurring cost.

• NRE charges must be broken out in a separate cost element breakdown (labor, material and ODC).• NRE charges must be broken out by cost element to clearly show the material, labor and ODC components associated with

the NRE

• Material – any material associated with NRE should be supported by supplier quotes or purchase orders.

• Labor – labor hours associated with NRE should have BOEs that are broken down by labor category and include detailed descriptions of the tasks that will be performed.

• ODC – any special tooling, test equipment or equipment refurbishment should be supported by BOEs and any supporting supplier quotes or purchase orders, etc.

NRE should be treated as a separate line item

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Cost Element Breakdown Example

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FAR 15.408, Table 15-2 requires offerors to segregate the proposal by line item with sufficient detail to permit cost analysis. Offerors must also attach cost element breakdowns for each proposed line item and furnish supporting breakdowns for each cost element consistent with its cost accounting system. The offeror must provide summary total amounts for each cost element covering all line items when it proposes more than one contract line item. Following is an example of the information required.

Cost Breakdown Requirements• Cost Element Breakdown Summary: When more than one contract line item (Part number,

NRE, etc.) is proposed, a supplier must provide a summary cost element breakdown with the total amounts covering all items for each element of cost in addition to the detail cost element breakdowns. If the proposal covers a high, mid and low point, the summary needs to only be for those points, not all the different combinations that can result from range pricing. If the proposal is for multiple years, there needs to be a summary for each of the years.

• The supplier would need to provide a summary by cost element that includes the total proposed value of $3,060,939. See the next slide for an example showing the three individual cost elements being combined into a summary.• There may be slight differences due to rounding

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Summary Cost Element Breakdown Example

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Cost Element Breakdown –Multiple Years

• If the proposal is for a base year plus option years, there needs to be a summary Cost Element Breakdown for each of the years at the points in the RFP requiring Cost or Pricing.

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Common Omissions and Findings

• Proposal Cover Sheet does not contain all of the required information

• Proposal does not contain an index

• Pricing templates are either missing or do not add to the total proposed value

• Pricing summaries required by Section III of FAR 15.408, Table 15-2 are missing

• Lack of traceability between offeror’s proposed pricing and attendant supporting information

• Termination Liability and Expenditure Forecasts that do not make sense based upon the time-phasing and the overall period of performance and/or do not match the proposal total

• Proposal location references are not provided, which are needed to facilitate the proposal review and are required by the proposal adequacy checklist

• “No” and “N/A” responses on proposal checklist without corresponding explanations for the “No” or “N/A” response

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Module 2

Material, Consolidated BOM, ODC, NRE, and Subtier Cost Analysis Requirements

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Material

• FAR 15.408, Table 15-2 requires the offeror to provide a consolidated priced summary of individual material and services (typically referred to as a Consolidated Bill of Material, or CBOM) included in the contract being proposed.• The proposal should also include Bills of Material (BOMs) at the line item level as well. • The CBOM and line item BOMs should include raw materials, parts, components, assemblies,

subcontracts and services to be produced or performed by others• The CBOM is a consolidation of the individual BOMs listing all the material needed for the

proposal. This includes all the materials for each of the parts being proposed, as well as assemblies, services or material associated with NRE. (See following slide “Individual Bills of Material Example”)

• FAR 15.403-5 allows the offeror to use its own format for this andother summaries. • Material items and services proposed as a minimum must include:

• Source, quantity and cost, which is the price of material or service• The BOE, which describes the basis for proposed material costs

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Material

• An adequate proposal should include a consolidated priced summary of individual material quantities included in the various tasks, orders or contract line items. In addition, the consolidated bill of material (CBOM) should provide:• The basis for pricing (vendor quotes, invoice prices, competitive bids, etc.)• Include raw materials, parts, components, assemblies and services to be produced or performed by others

including IOTs

• Identify the item and show the source, quantity and price

• A Bill of Material (BOM) for each individual part proposed should also be included in the proposal. • The consolidated and individual BOMs must include the following for each line item:

• Part number and description

• Supplier

• Nonrecurring costs

• Quantity

• Unit of measure

• Unit price – Unit pricing on the BOM should tie to the support

• Total price

• Basis for pricing (vendor quotes, purchase orders/invoices)

• Escalation and/or adjustment (e.g., decrement)

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Material

• The analyst executing the cost analysis will require copies of the support data (i.e., quotes, purchase orders, purchase order history, catalog pricing, etc.) for the items on the BOM to perform their review. The contractor or the United States government may request a sample of BOM items or the entire BOM. • It is encouraged to provide as much of this supporting data as possible with your initial proposal

submittal

• If attrition/yield or scrap are added to material, the supplier must submit adequate BOEs and support as appropriate.

• If inflation/escalation is applied for option years, the supplier must submit adequate BOEs and support as appropriate• Use of industry standards may help support (ex: Bureau of Labor Statistics, I H S Indices, etc.)

• There are times when the BOM may be impacted by minimum buys or NRE that is passed along from the supplier. If this happens, it should be clearly identified on the BOM and the supporting quotes orpurchase orders.

• If you have bid any noncompetitive or noncommercial interorganizational costs in your proposal, you will need to provide a cost element breakdown for each IOT and support as appropriate.

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Material

• Individual Bills of Material Example:

CBOM Total

$302,913

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Material • Consolidated Bill of Material (CBOM) Example:

• This CBOM was developed by taking the three individual BOMs on the previous page and combining them together.

• In a CBOM, part numbers and quantities should be combined (or subtotaled) if they are the same parts. For example, the BOMs for part numbers ABC and ABB both require the same motor – Part No. AA45621. In the CBOM the requirements have been combined and reflect the total number of motors that will be needed for this proposal.

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Material• Consolidated Bill of Material (CBOM) Example (cont’d):

• If the proposal is for a base year plus option years, there needs to be a CBOM for each of the years at each of the points in the RFP requiring cost or pricing.

• To determine if a subcontractor cost analysis is required, the anticipated costs for each subcontractor for all years must be added together.

• In the above example, two subcontractors will require a cost analysis (Ray Dome and Motion Bay) as the total value of the material to be purchased exceeds the $2,000,000 (1) threshold.

(1) Exceptions outlined in 10 U.S. Code §2306a – Cost or pricing data: truth in negotiations

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Material

(1) Exceptions outlined in 10 U.S. Code § 2306a – Cost or pricing data: truth in negotiations

• Subcontracts:• As previously stated, the requirements placed on prime offerors also apply to subcontractors.

When the government requires the prime to submit certified cost or pricing data, its suppliers must also submit certified cost or pricing data to the prime contractor (or next-higher-tier subcontractor), as appropriate. The exceptions to the certified cost or pricing data requirements for offerors also apply to the offeror’s subtier suppliers. Certified cost or pricing data submittal requirements for the offeror's subtier suppliers are described specifically in FAR Part 15.404-3(c)(1).

• Subcontractor subtier proposals• A cost analysis report is required if any of the subcontractor’s subtier proposals exceed the

Truth in Negotiations Act (TINA) threshold of $2,000,000 (1). These reports need to be submitted with the proposal.• If the cost analysis for a subcontractor is not complete at the time of your proposal submittal, a

schedule listing the estimated completion dates for each subcontractor needs to be provided in the proposal.

• If an exemption applies that eliminates the need for a cost analysis (commercial or competitively priced), documentation needs to be provided to support these claims.

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Material

* Current value, subject to change when FAR Councils revisit the various FAR acquisition thresholds and update them to account for inflation.

(1) Exceptions outlined in 10 U.S. Code § 2306a – Cost or pricing data: truth in negotiations

• If a subcontractor proposal claims that a subtier was competed and the value is over $2,000,000 (1), the following must be included in the proposal:

• Evidence that a Request for Proposal (RFP) or solicitation to bid was sent to two or more subcontractors capable of providingthe goods or services requested.• Copies of the quotes received from each of the suppliers who were competed.• Supplier’s analysis with basis of rationale for why the winning bid represents the best value (lowest price, technical considerations, etc.).

• If the claim is that the subtier supplier’s parts or services are commercial, supporting documentation will need to be provided to support this claim. In addition, a Commercial Item Determination(reference FAR Part 12 and FAR Part 2.101) and Price Reasonableness Determination (PRD) needto be completed and provided as support documentation.

• Additionally: • If there are subcontractors with a value in excess of $13.5* million or greater than 10 percent of the prime contractor’s

proposed price and exceeds $2,000,000 (1), FAR 15.408 Table 15-2 requires that the subcontractor’s proposal and cost orpricing data is submitted with the prime contractor’s proposal.

• Make/Buy Analysis may be requested on suppliers over the threshold:• A Make/Buy Analysis may be requested by the auditor (U.S. government or customer), especially if the vendor is a

large portion of your total proposal.• Also, if your company is using your supplier’s proposal as a BOE, but your company plans on conducting a

Make/Buy Analysis at a later date, it should be noted as such in your offer.

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• Other Direct Costs (ODC) • Other Direct Costs (ODCs): The term “other direct costs (ODC)” is a loosely defined term that refers to

anything charged directly to a contract not otherwise included as Direct Material or Direct Labor or IOT. Examples of items often classified as ODC include:

• Special tooling (see FAR definition 2.101)• Special test equipment (see FAR definition 2.101)• Outside consulting• Outside services/processing if not included on BOM• Travel• Freight

• For example, the basis for travel should include the origin and destination, length of trip, number of trips, number of people attending and the estimated expenses for the travel.

• The offeror should provide justification for the trips (e.g., are trips required by the contract, are trips necessary for coordination with subcontractors, etc.)

• Explain the basis for the proposed airfares, per diem and car rental. (e.g., Are the airfares based on current commercial rates adjusted for projected changes? Are the per diem rates based on established company rates or CONUS as published by the government, basis for the proposed rental car rates, etc.)

Other Direct Costs (ODC)

City/State Trips Persons Days AirfareTotal

AirfareLodging

Total

LodgingPer Diem

Total Per

Diem

Car

Rental

Total Car

Rental

Grand

Total

Washington DC 4 2 3 $459 $3,672 $231 $5,544 $64 $1,536 $49 $588 $11,340

Dallas, TX 1 4 8 $365 $1,460 $146 $4,672 $59 $1,888 $35 $560 $8,580

San Diego, CA 2 2 3 $620 $2,480 $149 $1,788 $59 $708 $40 $240 $5,216

TOTAL $7,612 $12,004 $4,132 $1,388 $25,136

Origination

City/State

Boston, Ma

Boston, Ma

Boston , Ma

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Common Omissions and Findings

• Bills of Material that do not contain the appropriate requested information

• No Consolidated Bill of Material (CBOM)

• CBOM:• The CBOM BOE for purchased prices is based on old and outdated data• Consumables are priced and listed on the BOM; however they are also calculated as a

Material OH rate

• Missing either a Cost Analysis, Commercial Item Determination, Price Reasonableness Determination (PRD) or a schedule for completion on subtiers exceeding the TINA threshold• Items deemed as “commercial”; Commerciality established/disclosed and deemed reasonably

priced • Subcontract costs identified; Cost/price analysis establishing reasonableness have been

completed/disclosed or a schedule for completion of analysis has been provided

• Inadequate support for suppliers bid based upon competition

• ODC: Tooling used on multiple contracts is priced as an ODC insteadof capitalized

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Module 3

Labor, Rates, Unallowables

and Basis of Estimate (BOE)

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Direct Labor

Time-Phased Breakdown

Dept. Description Hours Rate Dollars Hours Rate Dollars Hours Rate Dollars Hours Rate Dollars Hours Rate Dollars

1001 Assembly 500 $17.20 $8,600 500 $17.20 $8,600 500 $17.20 $8,600 500 $17.20 $8,600 2,000 $17.20 $34,400

1002 Machine Shop 63 $25.00 $1,563 63 $25.00 $1,563 63 $25.00 $1,563 63 $25.00 $1,563 250 $25.00 $6,250

1003 Test 25 $28.00 $700 25 $28.00 $700 25 $28.00 $700 25 $28.00 $700 100 $28.00 $2,800

Total Direct Labor 588 $10,863 588 $10,863 588 $10,863 588 $10,863 2,350 $43,450

Dept. Description Hours Rate Dollars Hours Rate Dollars Hours Rate Dollars Hours Rate Dollars Hours Rate Dollars

1001 Assembly 333 $17.72 $5,904 333 $17.72 $5,904 333 $17.72 $5,904 333 $17.72 $5,904 1,333 $17.72 $23,615

1002 Machine Shop 42 $25.75 $1,075 42 $25.75 $1,075 42 $25.75 $1,075 42 $25.75 $1,075 167 $25.75 $4,300

1003 Test 17 $28.84 $483 17 $28.84 $483 17 $28.84 $483 17 $28.84 $483 67 $28.84 $1,932

Total Direct Labor 392 $7,462 392 $7,462 392 $7,462 392 $7,462 1,567 $29,848

Hours Dollars

3,917 $73,298

Total Proposal

Year

Year Quarter 1 - 2018 Quarter 2 - 2018 Quarter 3 - 2018 Quarter 4 - 2018 Total - 2018

Quarter 1 - 2019 Quarter 2 - 2019 Quarter 3 - 2019 Quarter 4 - 2019 Total - 2019

• Direct Labor• A time-phased (e.g., monthly, quarterly) breakdown of labor hours, rates and cost by

appropriate category must be provided as well as basis for estimates.

• Proposed labor hours are generally a combination of direct and support labor hours.

• Direct labor hours – Hours that can be identified specifically to a final end item.

• Support labor hours – Hours that cannot be specifically identified to one end item. • For example, a production manager may be in charge of overseeing the manufacturing of

multiple parts.

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Direct Labor

• A breakdown of the labor hours by labor category and function along with a BOE for the proposed labor hours will need to be provided. • For example: 500 hours is proposed for an end item, a breakdown by

category/function (assembly, inspection, supervisor, engineer, etc.) must be provided. A detailed BOE for each category/function showing how the hours were derived for the proposed labor category is also required.

• One approach to estimate direct labor is to use actual production history. If the item has not been manufactured before, an alternative approach is the use of engineering estimates. The BOE shall include source data, calculations and rationale/estimating logic.

• Cost Accounting Standards (CAS) 48 CFR 9904.401 requires that a company is consistent between proposals and accounting practices. The way a company estimates its labor hours needs to also be the way it accumulates its production history. Reference FAR Part 52.230-2 Cost Accounting Standards and 48 CFR 9903.201-1(b) (FAR Appendix) for exemptions.

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Direct Labor

• Labor BOE:• BOE must include:

1. Definition of the work to be performed2. Estimate methodology and rationale3. Source data4. Calculations

• Typically, labor BOEs would contain, but not be limited to, the following information: • Work breakdown structure• Period of performance showing start and stop dates• Labor categories being priced, to include task descriptions• Time-phased hours• Complete rationale• Name of person who estimated BOE• Identification of any historical data utilized in the estimate• Cost estimating relationships forming all or part of the estimate• If man-months are used, you must identify hours per man-month

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Direct Labor BOE Example: Manufacturing40

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Direct Labor BOE Example: Engineering41

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Direct Labor BOE Example: LOE

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Direct Labor

• Contractors and subcontractors should have detailed schedules of the labor rates and hours used in the proposal.

• An adequate proposal should include:• The basis of proposed labor rates and classifications including any escalation

factors:• A contractor and/or DCAA will need to audit any data that supports these estimates.

• The audit will include an evaluation of the basis of labor categories (labor grades) proposed and the hours assigned to each labor category.

• The basis of proposed labor hours, comparisons of proposed hours to experienced hours for the production of similar items and any learning curve applications.

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Common Omissions and Findings

• Cost breakdowns that do not provide time-phasing of hours, rates and factors,etc. by category at a minimum time phasing should be by CY or FY as required by RFP

• Inadequate basis of estimates that do not tell a story• Lack of supporting cost or pricing data to support estimate, (e.g., actual

production labor history, similar-to history, calculations, etc.) • BOE does not include all requirements of adequate BOE: Definition of the

work to be performed, source, calculation, rationale• Validity of CERs not adequately supported. (Disclose how CER was

developed & why CER applicable to effort being proposed,…)• Labor categories, rate development & escalation of rates – needs to be

disclosed. If information already provided to government, may want to state where rate audit stands (FPRA, FPRR, FPRP)

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Rates

• The offeror must also provide the basis for proposed labor rates and supporting data to include budgetary and trend data. The basis may be a Forward Pricing Rate Agreement (FPRA), Forward Pricing Rate Recommendation (FPRR) or a Forward Pricing Rate Proposal (FPRP) recently submitted to the government for review.• Rates typically include direct labor, overhead, general and administrative expense (G&A) and cost of money

(COM).• An adequate proposal should include the basis of proposed rates and classifications including any escalation

factors.

• If capable, the buying company can perform a rate audit on suppliers in lieu of having DCAA complete the audit.• If the offeror allows the buying company to perform a rate audit, the following information

should be provided:• Explanation as to how the rates were calculated.

• Detailed documentation (financial statements, labor pools, listing of unallowable expenses, etc.) that support the rate calculations.

• If the detailed documentation is based upon budgetary numbers, you will also need to provide three years of your most current actuals to support your budgetary numbers.

• If budgetary numbers differ significantly from the most recent actuals, provide detailed explanations forthese differences.

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Rates

• Facilities capital COM:• When the supplier elects to claim COM, the

supplier must submit a completed form CASB-CFM (Facilities Capital Cost of Money Factors Computation) in accordance with FAR 31.205-10. Also, complete DD Form 1861 and include a copy in your proposal submission. Both forms can be found online at various locations.

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Rate BOE Example

• The following is an example BOE for a specific rate scenario in a company’s (Widgets Inc.) proposal offering. The example does not represent a BOE that covers all possible scenarios or implies compliance for an offer’s specific instance. In practice, BOEs must be written to provide rationale, supporting date, and calculations that represent how business is currently or planned to be executed during the proposed period of performance.

• Historical data used to develop the base direct and indirect rates and data used to develop the proposed rates must be submitted with the proposal submission or the offer must state how it will be made available. In the event access to audit the direct and indirect rates is being denied to the prime contractor, a BOE is still required detailing how the base and proposed rates are developed and stating specifically what is being denied.

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Rate BOE Example

• Labor Rates• Widgets Inc. does not have forward pricing rate agreements in place.

• To account for hours incurred and to cost those hours in the accounting systems, each direct charging employee is assigned to a direct labor category. The direct labor rates by labor category used in the proposal is the average hourly rate of all direct employees in each respective labor category. (Table X provides the labor categories and associated bid codes.) The average hourly rate for each labor category is constructed to include wages, overtime, payroll taxes, worker compensation insurance, benefits, and paid time off and was computed using the current discrete employee labor rates as of December 31, 2016. To forecast the labor rate used for the period of performance (March 1, 2017 Through January 31, 2020) being proposed, the base 2016 average rate by labor category was escalated by labor category. The annual expected escalation for each category is based on the average salary adjustments by category associated with proportions and merit increases from the most recent five fiscal years (2011 – 2015) for that category.

• To determine the total unburdened labor cost, the average labor rate is applied against total proposed hours for each labor category.

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Rate BOE Example

• Indirect Rates

• Indirect rates include overhead, material overhead and general and administrative. The indirect rates are calculated based on the projected budget for the next operating year with adjustments for known changes, anomalies, and staffing changes from the previous fiscal year actual costs. Indirect rates are prepared annually by fiscal year (September 1 through October 31). To forecast the indirect rates used for the period of performance (March 1, 2017 Through January 31, 2020) being proposed, the base 2016 indirect rates were escalated using the average year over year escalation computed from the most recent five fiscal years (2011-2015).

• Note: Must provide supporting data and show calculations for rate development and any applied factors.

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Rate BOE Example

• Labor Overhead %

• Labor overhead % = Overhead Expense Pool / Direct Labor Base

• Overhead Expenses = costs that cannot be directly identified with a finished product but contribute to the product’s cost. They are the expenses that are not considered direct material or direct labor.

• Examples of labor overhead expenses are:• Indirect labor (e.g., engineering/manufacturing supervisor wages)• Engineering/Manufacturing employee related expenses• Engineering / Manufacturing supplies • Small tools (hammers, screw drivers)• Software costs

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Rate BOE Example

• Material Overhead %

• Material overhead % = Material overhead expense pool / Direct Material Base

• Material Overhead Expenses = costs that are associated with a company’s receipt and use of materials in the production process. These expenses are different than the cost of direct materials that become an integral part of the finished product.

• Examples of expenses that comprise the material overhead expense pool are:• Expendable material (e.g., glue, adhesive, nails, nuts, bolts)• Procurement• Transportation • Packaging/shipping/receiving• Material control• Material warehouse

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Rate BOE Example

• General and Administrative %

• General and Administrative % = G&A Expense Pool / Direct & Indirect Manufacturing Expense

• General and administrative costs include the overall cost to manage the business. This type of indirect cost relates to the company’s administrative and executive offices.

• Examples of G&A expenses are:• Executives and staff• Staff services such as legal and accounting• Corporate charges• Independent research and development (IR&D)• Rent• Selling and marketing expenses (e.g., commissions, travel, advertisement)

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Allowable/Unallowable Costs

• FAR 31.204 discusses what are allowable costs to be charged toU.S. government contracts• Costs are allowable to the extent they are reasonable, allocable and determined to be allowable

under FAR 31.201, 31.202, 31.203 and 31.205. • Reasonable Definition: FAR 31.201-3• Allocable Definition: FAR 31.201-4 (Indirect vs. Direct Costs: 31.202 and 31.203)• Allowable Definition: FAR 31.201-2 and FAR 31.205 (52 clauses)

• FAR 31.205 provides detail to what costs are allowable or unallowable(52 clauses). This section of FAR does not cover every element of cost. • Example of topics:

• Cost of Money (FAR 31.205-10) • Depreciation (FAR 31.205-11) • Entertainment Costs (FAR 31.205-14) • Costs of Alcoholic Beverages (FAR 31.205-51)

• A good rule of thumb: If it sounds like fun, it is probably unallowable. • Meaning: you should look up the clauses in FAR 31.205 and see if there is a ruling on

a particular cost.

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Common Omissions and Findings

• Including unallowable costs in the OH Rate Calculation

• Including travel costs in OH Rate, but also proposing it as a discrete estimatein ODC

• Failure to provide BOE for how rates were derived

• State basis for rate development and escalation factor

• Missing DD Form 1861 if FCCOM is being estimated.

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Profit

• Profit/Fee Analysis required per FAR 15.404-4(b)

• Contracting agencies are required to use a structured approach for developing a prenegotiation profit or fee objective on any negotiated contract action when cost or pricing data is obtained, except for cost-plus-award-fee contracts (see 215.404-74) or contracts with Federally Funded Research and Development Centers (FFRDCs) (see 215.404-75).• There are three structured approaches:

(A) weighted guidelines, (B) modified weighted guidelines, and(C) an alternate structured approach

• Weighted guidelines define a structure for profit/fee analysis that includes designated ranges for objective values as well as norm values that are tailored to fit the circumstances of the specific acquisition reference DFARS 215.404-71 Weighted guidelines method.• Factors taken into account include

• Contractor's degree of performance risk in producing the goods or services purchased under the contract action

• Contract-type risk assumed by the contractor under varied contract and incentive arrangements (reference FAR Part 16 — Types of Contracts)

• Level of working capital needed for contract performance

• The nature of the contractor's facilities capital to be employed

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• In summary, all noncompetitive, noncommercial proposals valued at more than $2,000,000 (1) are required to include the following information:

• Sufficient rationale and supporting documentation to support each of the proposed cost elements is also required.

• Obtaining adequate supplier proposals is always on the critical path, since the buying company cannot submit its proposal to the government until it has received adequate proposals from its subcontractors. Therefore, it is critical that adequate supplier proposals are obtained as quickly as possible.

(1) Exceptions outlined in 10 U.S. Code § 2306a – Cost or pricing data: truth in negotiations

Summary

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References

Note: Some links you will need to copy and paste them directly into a web browser to directly access the information.

FAR Sites:http://farsite.hill.af.mil/vffara.htm

FAR 15.403-1(b) – Exceptions to Certified Cost or Pricing Data

FAR 15.403-4 – Requiring Certified Cost or Pricing Data

FAR 15.403-5 – Instructions for Submission of Certified Cost or Pricing Data

FAR 15.404-1(a)(3) – Proposal Analysis Techniques

FAR 15.404-3(c)(1) – Subcontract Pricing Considerations

FAR 15.408 Table 15-2 – Instructions for submitting Cost/Price Proposals When Certified Cost or Pricing Data Are Required

FAR 27.202 – Royalties http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/27.htm#P53_7033

FAR 31.205-10 – Cost of Moneyhttp://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/31.htm#P493_96027

FAR 31.205-37 – Royalties and Other Costs for Use of Patentshttp://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/31.htm

DFARS 252.215-7009 – Proposal Adequacy Checklisthttp://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/dfars/dfars252_215.htm#P270_19648

DD Form 1861http://www.dtic.mil/whs/directives/forms/eforms/dd1861.pdf

Defense Acquisition Universityhttps://www.dau.mil/cop/pricing/Lists/Tools/AllItems.aspx

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• BAE Systems

• The Boeing Company

• C4 Associates

• Honeywell

• JRI Inc.

• Lockheed Martin

• L3 Technologies

• Northrop Grumman Co.

• Raytheon Company

• Rockwell Collins

• Rolls-Royce North America

Supplier Proposal Advocacy Guideline Participants

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