1616-Introduction to Cost & Price Analysis

Question 1

What is FAR part 31?

Answer 1

Cost Principles

Question 2

What is the basic reference guide for Government pricing?

Answer 2

Contract Pricing Reference Guides (CPRG’s)

Question 3

What are the three elements of the Basic Pricing Policy?

Answer 3

Purchase from Responsible Sources at Fair and Reasonable Prices

Separately and Independently price each contract

Exclude Contingencies

Question 4

What are the two components of pricing each contract separately?

Answer 4

Perspective

Government contracting

Question 5

What are the conflicting perspectives under pricing each contract separately?

Answer 5

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

Question 6

What is a contingency?

Answer 6

A possible future event or condition arising from presently known or unknown causes and the outcome cannot be determined at the present time

Question 7

What are the two types of contingencies?

Answer 7

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

Question 8

What is the Truth in Negotiations Act (TINA)?

Answer 8

It enhanced the Government’s ability to negotiate fair & reasonable prices by establishing the requirement for certified cost or pricing data

Question 9

What is the dollar threshold for TINA?

Answer 9

$700,000

Question 10

What is the definition of Price Analysis?

Answer 10

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

Question 11

What is the definition of Cost Analysis?

Answer 11

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

Question 12

What is the definition of Cost Realism Analysis?

Answer 12

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

Question 13

When is Cost Analysis required?

Answer 13

When the Truth In Negotiatios Act (TINA) applies

Question 14

When is Cost Realism Analysis required?

Answer 14

Cost Type Contracts

Question 15

When is Price Analysis required?

Answer 15

Every Time

Question 16

When would it be appropriate to use a price analysis?

Answer 16

If certified cost or pricing data is NOT required

Question 17

What are the exceptions to TINA?

Answer 17

Adequate Price Competition (Two or More)
Price set by Law/ Reg
Commercial Item
Waiver
Mods to the Commercial Contracts or Subcontracts

Question 18

What price analysis methods are the most preferred?

Answer 18

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

Question 19

What are Three Common Estimating Methods?

Answer 19

Comparison
Detailed
Round Table

Question 20

When is TINA required?

Answer 20

Cost Analysis

Question 21

What types of items does a technical analysis review?

Answer 21

Processes
Real property
Equipment
Special tooling
Scrap &/or spoilage
Pertinent technical aspects
Labor mix
Types & quantities of material
Types & quantities of labor hours

Question 22

Can cost and price analysis be used together?

Answer 22

Yes

Sometimes we need to analyze other than certified data related to an individual element of cost

Question 23

Which type of cost estimating method should a contractor use?

Answer 23

In general, an offeror may use any generally accepted estimating method that is equitable and consistently applied

Question 24

What are the pros and cons of the Round Table cost estimating method?

Answer 24

Pro: Can be used with limited data

Con: Lack of data
Increases variability between estimators and true costs

Question 25

What are the pros and cons of the Comparison cost estimating method?

Answer 25

Pro: Rapid development of estimates based on historical costs

Con: Estimated based on historical costs can project historical inefficiencies

Question 26

What are the pros and cons of the Detailed cost estimating method?

Answer 26

Pro: Most accurate estimate

Con: Requires complete information that may be expensive or impossible to obtain

Question 27

When would it be appropriate to use a cost analysis?

Answer 27

If certified cost or pricing data is required

Question 28

What are the approaches that are commonly used in determining price?

Answer 28

Cost-Plus (Penetration) Pricing
Demand (Skimming) Pricing
Rule-of-Thumb (Myopic) Pricing
By-In (Foot-in-the-Door) Pricing