Contracting Test #4 Flashcards
3 Government Price Objectives listed in the Basic Pricing Policy (FAR Part 15.402)
- Purchase from responsible sources at fair & reasonable prices
- Price each contract separately & independently
- Exclude contingencies
What are the 2 components of pricing each contract separately?
- Perspective
2. Government contracting
What are the 2 conflicting perspectives under pricing each contract separately?
- Seller’s position
2. Buyer’s position
In reference to pricing, 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 2 types of contingencies in reference to pricing?
- permanently know the existing conditions with the effects of these conditions to be foreseeable within reasonable limits of accuracy
- cannot be measured to provide equitable results to the Contractor and the Government
What is the Truth in Negotiations Act (TINA)?
1962 act enhanced the government’s ability to negotiate fair and reasonable prices by establishing the requirement for certified cost or pricing data; requires the contractor to give the Government cost and pricing data as a surrogate in the absence of normal market forces (competition) to determine fair and reasonable prices
What is the dollar threshold for TINA?
> $2,000,000
When is TINA required?
absence of normal market forces (no competition)
Definition of Price Analysis
Process of examining and evaluating a proposed price to determine if it is fair and reasonable, without evaluating separate cost elements and proposed profit
Definition of Cost Analysis
Review and evaluation of the separate cost elements and proposed profit/fee of an offeror’s certified cost and pricing data
Definition of Cost Realism Analysis
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
Cost realism analysis determines whether the estimated proposed cost elements are:
(1) are realistic for the work to be performed
(2) reflect a clear understanding of work
(3) are consistent with the unique methods of performance and materials described in the offeror’s technical performance
When is cost analysis required (TINA)?
when certified cost or price data are required
When is price analysis used?
when certified cost or pricing data are not required
When is cost realism analysis used?
when cost type contracts are considered
What method is preferred to make determination that prices are fair and reasonable?
Price Analysis
What are the types of price analysis methods?
(1) comparison of prices received in response to the solicitation
(2) comparison of previously proposed prices with current proposed prices for the same or similar items
(3) parametric estimating methods
(4) comparison with competitive published price
(5) comparison with independent government cost estimates
(6) comparison with prices obtained thru market research
(7) analysis of pricing info provided by offeror
Which (2) price analysis methods (competition) are preferred?
(1) comparison of prices received in response to the solicitation
(2) comparison of previously proposed prices with current proposed prices for the same or similar items
What types of items does a technical analysis review?
(1) types & quantity of material
(2) types & quantity of labor hour
(3) labor mix
(4) pertinent technical aspects
(5) processes
(6) special tooling
(7) equipment
(8) real property
(9) scrap and/or spoilage
At a minimum, what (2) types of technical analysis review must be conducted?
(1) types and quantity of material
(2) types and quantity of labor hour
Under what circumstances should cost and price analysis be used together?
when fair and reasonable price cannot be determined thru price analysis alone for commercial or non-commercial items
(FAR 15.404-1(a)(4))
What are the pros and cons of round table cost estimating method?
PROS: used with limited data
CONS: lack of data and increased variability between estimators and true costs
What are the pros and cons of comparison cost estimating method?
PROs: rapid development of estimated based on historical
CONs: historical inefficiency
What are the pros and cons of detailed cost estimating method?
PROS: most accurate
CONs: expensive
Cost realism is required for……
all cost type contracts
Cost realism MAY be used for _______ contracts.
fixed-price
What are the exceptions to (TINA) certified cost or pricing data over $2M per FAR 15.403-1?
(1) adequate price competition
(2) price set by law/regulation
(3) commercial item
(4) waiver from HCA
What are the 5 bases for price analysis?
(1) other proposed prices (competition)
(2) commercial prices
(3) previously proposed prices and contract prices
(4) parametric and rough yardsticks
(5) independent government estimate
Which of the 5 based of price comparison is the most preferred?
Other proposed prices (competition)
What are factors that affect comparison?
(1) Government unique requirement
(2) Geographic location
(3) Extent of competition
(4) Quantity or size
(5) Technology
(6) Purchasing power
(7) Market conditions
What type of questions would affect historical price comparison?
(1) been purchased before?
(2) historical price?
(3) historical fair and reasonable?
(4) comparison valid?
Who requires an IGE?
requiring activity/customer
What are the 3 types of costs?
(1) fixed
(2) variable
(3) semi-variable
What is the “no double dipping” refers to what cost situation?
no final cost shall have allocated in 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.
FAR Part 31 deals with….
cost principles and determines allowability
A PCO cannot…
negotiate indirect cost rates
Define allocate
assign an item of cost, or a group of items of costs, to one or more cost objectives
A cost is allocable if…
it is assignable or chargeable to one or more cost objectives on the basis of relative benefits or other equitable relationship
A cost is allowable to a government contract if it complies with:
(1) reasonable
(2) allocable
(3) compliant with CAS
(4) term of the contract
(5) any limitations set forth in FAR Part 31.205
Total cost is:
the sum of the direct and indirect costs allocable to the contract, incurred or to be incurred, plus any allocable costs of money less any allocable credits
While the total cost of a contract includes all costs properly ________ to the contract, the _________ costs to the government are _______ to those allocable costs which are allowable to pursuant to Part 31.
allocable; allowable; limited
Define unallowable cost means:
cost under the provisions of any pertinent law, regulation, or contract, cannot be
included in prices, cost-reimbursement, or settlements under government
contract
A cost is reasonable if:
it does not exceed that which would be incurred by a prudent person in the conduct of competitive business
Define Direct Cost
Any cost specifically identified with a particular final cost objective. Is not
necessarily limited to items that are incorporated into the product as labor or
material.
Define Indirect Cost
Costs that is not readily subject to treatment as a direct cost. Indirect costs are
associated with two or more (contract) cost objectives, e.g., Overhead Costs,
which are indirect costs that support a particular function of the company such as
factory maintenance, and General and Administrative Costs
List price related factors:
(1) multiple awards
(2) Government furnished property
(3) transportation costs
(4) Options and multiyear
(5) life cycle costs
(6) energy conservation
(7) lease v. purchase
(8) small disadvantaged biz
(9) Hubzone price eval
(10) Buy American Act
Define FOB destination
Contractor bears expense of transport to government location; risk of loss and damage passes to the government on arrival after acceptance
Define FOB Origin
Government will pick up deliverable from Contractor facility; risk of loss and damage passes to the government immediately upon acceptance, prior to and during transit
Define price related factors
Adjustments required by law or regulation in order to complete price evaluation
What organization helps to review and determine reasonable overhead and labor rates?
DCAA
What are the 3 types of cost estimating methods?
(1) detailed (most expensive but preferred)
(2) round table
(3) comparison/analogy
List systemic and cultural differences between government contracting and commercial counterpart
(1) use of taxpayer money
(2) fairness
(3) DoD is a final consumer
(4) conflicting goals
(5) different culture
(6) reluctance of commercial firms
List product differences between government contracting and commercial counterpart
(1) higher performance required
(2) buying in a small lot size
(3) cost and pricing issues
(4) liability
(5) supportability & obsolescence
(6) warranties
What are the 4 seller pricing strategies?
(1) Rule of Thumb
(2) Demand
(3) Cost-Plus
(4) Buy-In
Rule-of-Thumb Pricing Strategy
MYOPIC;
includes leader-follower and flat markup rate
Demand Pricing Strategy
SKIMMING;
charging what the market will bear
Cost-Plus Strategy
PENETRATION CLOSING; sell main system for a low price and charge more games/cartridges
Buy-In Strategy
FOOT-IN-THE-DOOR; coming in under cost for a short period of time; indicator of risk for the Government
Define allowable
reasonable, allocable, and not against terms of contract or law
Define value analysis
results from a specialized analysis of the function of a product and its related price
Define visual analysis
results from a visual inspection of an item or drawing of an item to estimate its probable value
Apply rental equivalent evaluation procedures to:
utilize by adjusting the offers, (for eval purposes only) to eliminate to the
maximum practical extent any competitive advantage a prospective contractor
may have by using Government property
FAR Part 10
Market Research
What are the three factors that impact a reasonable price?
(1) supply and demand
(2) General economic conditions
(3) Competition
Define life cycle costs
total cost of acquiring, operating, supporting, and disposing of items being
acquired (include product design, support contracts, and follow-on efforts)
Cost Estimating Methods is when?
an offeror may use any generally accepted estimating method that is equitable
and consistently applied
Define reasonable
Determined by economic conditions, supply and demand, competition
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
