Contracting Exam 4 Flashcards
What is the basic reference guide for Government pricing
Contract Pricing Reference Guides (CPRG)
What are the three elements of the Basic Pricing Policy?
- Purchase from Responsible Sources at fair and reasonable prices
- Price each contract separately and independently,
- 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?
- Seller’s Position
- Buyer’s Position
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 and be able to identify each?
- Contingencies can arise from permanently known and existing conditions with the effects of these conditions to be foreseeable within reasonable limits of accuracy
- Contingencies can arise from known or unknown conditions, where the effects cannot be measured to provide equitable results to the contractor and the government
What is the Truth in Negotiations Act (TINA)?
Must obtain certified cost or pricing data when:
- Award of any negotiated contract >$750,000 - Modifications; Even if cost or pricing data not required on initial contract - Considering positive & negative adjustments exceed $750,000
Certified cost or pricing data
-Cost or pricing data that is certified to as being accurate, complete & current
What is the dollar threshold for TINA?
> $750,000
When is it appropriate to use a price analysis vs a cost analysis?
- You must use price analysis to determine if a price is fair and reasonable when an offeror is not required to provide certified cost and pricing data
- When TINA applies, you must use cost analysis
What are the types of price analysis methods and which are the most preferred?
Two most Preferred: Comparison
- Comparison of prices received in response to the solicitation
- Comparison of previously proposed prices with current proposed prices for the same or similar items
- Parametric estimating methods
- Comparison with competitive published price
- Comparison with independent Government cost estimates
- Comparison with prices obtained through market research
- Analysis of pricing information provided by the offeror
When is Truth In Negotiations Act (TINA) required?
In the absence of normal market forces
Can cost and price analysis be used together?
Yes
Which type of cost estimating method should a contractor use?
Detailed; most preferred
What are the three types of cost estimating methods?
- Round Table
- Comparison
- Detailed
What is Direct and Indirect Cost?
Direct- Single cost objective
Indirect Cost- Cost tied to multiple contracts
When do you negotiate profit?
Last
True or False: Cost realism is required for ALL cost type contracts
TRUE
Costs may be charged as ____ only or _____ only.
Direct and Indirect
When may a direct cost be treated as an indirect cost?
For reasons of practicality, the contractor may treat any direct cost of a MINOR dollar amount as an indirect cost if the accounting treatment—
(1) Is consistently applied to all final cost objectives; (2) Produces substantially the same results as treating the cost as a direct costs.
When is a cost allowable?
A cost is allowable only when the cost complies with all of the following requirement:
- Reasonableness
- Allocability
- Standards promulgated by the CAS Board, if applicable
- Terms of the contract
- Any limitations set forth in this subpart
How does the customer come up with the IGE?
Visual Analysis and Value Analysis
Whart are the 3 x Methods of Proposal Analysis?
1) Price analysis (Required everytime!)
2) Cost analysis (Required w/ TINA)
3) Cost Realism Analysis (Required on every cost type contract)
What are the four exceptions to certified cost or pricing data (TINA)?
1) Adequate Price Competition
2) Price set by law/reg
3) Commercial Item*
4) Waiver by HCA
Which pricing methodology is middle of the road?
Rule of Thumb
Which pricing strategy is short term?
Foot in the door / Buy in
What is an Unallowable Cost?
Any cost that, under the provisions of any pertinent law, regulation, or contract, cannot be included in prices, cost-reimbursements, or settlements under a Government contract to which it is allocable.
What is Total Cost?
The sum of the direct and indirect costs. (TRUE on Exam)
When is a cost allowable?
- Reasonable
- Allocable
- Compliant with CAS, if applicable; otherwise, GAAP
- Terms of the Contract
- Selected Costs in FAR 31.205
A Reasonable Cost is:
- Generally recognized as ordinary and necessary for the conduct of the business or contract performance.
- Generally accepted sound business practices, arm’s length bargaining and Federal and State laws and regulations;
- Contractor’s responsibilities to the Government, other customers, the owners of the business and the public; and
- Contractor’s established practices
What is Direct Cost of a Minor Dollar Amount
For reasons of practicality, the contractor may treat any direct cost of a minor dollar amount as an indirect cost if the accounting treatment –
(1) Is consistently applied to all final cost objectives; (2) Produces substantially the same results as treating the cost as a direct cost.
What is a Direct Cost?
Any cost that is identified specifically with a particular final cost objective.
- Direct costs of the contract shall be charged directly to the contract. - No final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose in like circumstances have been included in any indirect cost pool to be allocated to that or any other final cost objective
What is an allocable cost?
Assignable or chargeable to one or more cost objectives on the basis of relative benefits received;
- Incurred specifically for the contract; - Benefits both the contract and other work, and can be distributed to them in reasonable proportion to benefit received; or - Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown
What is a Price-Related Factor?
Adjustments required by law or regulation in order to complete price evaluation
Free On Board (FOB) Destination
- Contractor bears the expense of transporting the item to the government’s desired location
- Risk of loss and damage passes to the government on arrival after acceptance
Free on Board (FOB) Origin
- Government will pick up the deliverable from the contractor facility
- Risk of loss and damage passes to the government immediately upon acceptance, prior to and during transit
What is 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.
What is 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
**When TINA applies, you must use cost analysis
What is 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
What is an In-Direct Cost?
Any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective.
What is Round Table Estimating?
- Experts develop cost estimates by exchanging views and making judgments based on knowledge and experience
- Commonly used when there is little or no cost experience or detailed product information
What is Comparison estimating?
- Costs for a new item are estimating using comparisons with the cost of completing similar tasks under past or current contracts
- Comparisons may be made at the cost element level or total price level
- Adjustments may also be made for possible upward or downward trends
What is Detailed estimating?
- Characterized by a thorough review of all components, processes and assemblies. It requires detailed information to arrive at estimated costs and typically uses cost data derived from the accounting system, statistical records and other sources
- Most commonly used when information is available
- *Most preferred**
What is a Life Cycle Cost?
Total cost of acquiring, operation, supporting and disposing of items being acquired.
True or False: In general, an offeror may use any generally accepted estimating method that is equitable and consistently applied.
TRUE
What is the double-dipping phrase?
No final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose in like circumstances have been included in any indirect cost pool to be allocated to that or any other final cost objective.
What is Buy-in pricing, aka “Foot in the Door”?
A short-term approach based on other than normal cost recovery or profit motives.
What is Cost-Plus pricing, aka Penetration?
A logical way to determine a minimum acceptable price.
What are the five bases for price analysis?
a. Other proposed prices - very very very best (competition)
b. Commercial prices
c. Historical Prices (Previously proposed prices & contract prices)
d. Parametric & rough yardsticks
e. Independent Government Estimates (IGE’s)
