1616-Introduction to Cost & Price Analysis Flashcards
What is FAR part 31?
Cost Principles
What is the basic reference guide for Government pricing?
Contract Pricing Reference Guides (CPRG’s)
What are the three elements of the Basic Pricing Policy?
Purchase from Responsible Sources at Fair and Reasonable Prices
Separately and Independently price each contract
Exclude Contingencies
What are the two components of pricing each contract separately?
Perspective
Government contracting
What are the conflicting perspectives under pricing each contract separately?
The seller’s position might be that the firm lost money on the last contract so that an effort needs to be made to make up for that loss on the next contract
The buyer’s position might be that the contractor made too much profit on the last contract so the next contract should be structured to restrict profit
What is a contingency?
A possible future event or condition arising from presently known or unknown causes and the outcome cannot be determined at the present time
What are the two types of contingencies?
Permanently known and existing conditions with the effects of these conditions to be foreseeable within reasonable limits of accuracy
Known or unknown conditions, where the effects of these conditions CANNOT be measured to provide equitable results to the contractor and the government
What is the Truth in Negotiations Act (TINA)?
It enhanced the Government’s ability to negotiate fair & reasonable prices by establishing the requirement for certified cost or pricing data
What is the dollar threshold for TINA?
$700,000
What is the definition of Price Analysis?
The process of examining and evaluating a proposed price to determine if it is fair and reasonable, without evaluating its separate cost elements and proposed profit
Bottom Line
What is the definition of Cost Analysis?
The review and evaluation of the separate cost elements and proposed profit/fee of an offeror’s certified cost and pricing data or data other than certified cost and pricing data
What is the definition of Cost Realism Analysis?
The process of independently reviewing and evaluating specific elements of each offeror’s proposed cost estimate to determine whether the estimated proposed cost elements:
Are realistic for the work to be performed
Reflect a clear understanding of work
Are consistent with the unique methods of performance and materials described in the offeror’s technical performance
When is Cost Analysis required?
When the Truth In Negotiatios Act (TINA) applies
When is Cost Realism Analysis required?
Cost Type Contracts
When is Price Analysis required?
Every Time
When would it be appropriate to use a price analysis?
If certified cost or pricing data is NOT required
What are the exceptions to TINA?
Adequate Price Competition (Two or More) Price set by Law/ Reg Commercial Item Waiver Mods to the Commercial Contracts or Subcontracts
What price analysis methods are the most preferred?
Comparison of prices received in response to the solicitation (competition)
Comparison of previously proposed prices with current proposed prices for the same or similar items
What are Three Common Estimating Methods?
Comparison
Detailed
Round Table
When is TINA required?
Cost Analysis
What types of items does a technical analysis review?
Processes Real property Equipment Special tooling Scrap &/or spoilage Pertinent technical aspects Labor mix Types & quantities of material Types & quantities of labor hours
Can cost and price analysis be used together?
Yes
Sometimes we need to analyze other than certified data related to an individual element of cost
Which type of cost estimating method should a contractor use?
In general, an offeror may use any generally accepted estimating method that is equitable and consistently applied
What are the pros and cons of the Round Table cost estimating method?
Pro: Can be used with limited data
Con: Lack of data
Increases variability between estimators and true costs
What are the pros and cons of the Comparison cost estimating method?
Pro: Rapid development of estimates based on historical costs
Con: Estimated based on historical costs can project historical inefficiencies
What are the pros and cons of the Detailed cost estimating method?
Pro: Most accurate estimate
Con: Requires complete information that may be expensive or impossible to obtain
When would it be appropriate to use a cost analysis?
If certified cost or pricing data is required
What are the approaches that are commonly used in determining price?
Cost-Plus (Penetration) Pricing
Demand (Skimming) Pricing
Rule-of-Thumb (Myopic) Pricing
By-In (Foot-in-the-Door) Pricing
