Cost & Pricing Exam 1 Flashcards
What is the basic reference guide for Government pricing?
Cost and Pricing Reference Guide
Identify the 3 elements of basic pricing policy.
- purchases from responsible sources at fair and reasonable prices
- price each contract separately and; independently
- exclude contingencies
Identify the 2 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
Define contingency.
A possible future event or condition arising presently known or unknown causes and the outcome can not be determined at the present time
What is TINA?
Truth in Negotiations Act
Enhanced government’s ability to negotiate fair & reasonable prices.
It is used when there is no competition for non-commercial items.
What is the threshold for TINA?
> $2M
Define price analysis
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
(Analyzes price in their entirety)
Define 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
(Analyzes prices by reviewing the individual elements of cost and the appropriateness and necessity of each element)
Define cost realism analysis
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, and are consistent with the unique methods of performance and materials described in the offeror’s technical performance
(Independently reviewing cost elements to determine if they are realistic for the work to be performed - required for all cost contracts)
When is price analysis used over cost analysis?
When an offeror is not required to provide certified cost and pricing data
What are the types of price analysis?
Which one is most preferred?
1) comparison and prices received in response to a solicitation AKA competition (most preferred)
2) comparison of previously proposed prices with currently proposed prices
3) parametric estimating methods
4) comparison with competitive published price
5) comparison with independent government cost estimates
6) comparison with prices obtained through market research
7) analysis of pricing information provided by the offeror
When is TINA required?
When it’s a sole source contract over $2M on a non-commercial item
Identify the types of items that a technical analysis reviews
1) types and quantities of material
2) types and quantities of labor hours
3) labor mix
4) pertinent technical aspects
5) processes
6) special topping
7) equipment
8) real property
9) scrap and/or spoilage
(T/F) - Cost and price analysis can be used together
True
Identify the 3 types of cost estimating methods
1) round table
2) comparison
3) detailed
Which type of cost estimating method should a contractor use?
Any generally accepted estimating method that is equitable and consistently applied
What are pros and cons to the round table estimating method?
Pros: can be used with limited data
Cons: lack of data, increases variability between estimators and true costs
What are pros and cons to the comparison estimating method?
Pros: rapid development of estimates based on historical costs
Cons: estimated based on historical costs can project historical inefficiencies
What are pros and cons to the detailed estimating method?
Pros: most accurate estimate
Cons: requires complete information that may be expensive or impossible to obtain
What are exceptions to TINA?
1) adequate price competition
2) price set by law/regulation
3) commercial item
4) waived by head of the contracting agency (HCA)
Identify the 4 approaches used in determining price
1) cost-plus (penetration) pricing
2) demand (skimming) pricing
- charging as much as the market will bear
3) rule-of-thumb (myopic) pricing
- leader/follower type - Airlines
4) buy-in (foot in the door) pricing
- entering market at or below cost
Identify the price related factors
1) government furnished property
2) life cycle costs
3) HUBZone price evaluation factor
4) Buy American Act criteria
5) multiple awards
6) transportation costs
7) options and multi year contract
8) lease vs. purchase
9) energy conservation and efficiency
10) small disadvantaged business
When the KTR 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.
FOB Destination
When the government picks up the deliverable from the KTR facility
FOB Origin
The government assumes the risk as soon as it leaves the KTR’s possession
When a pricing strategy is a short term approach it is based on which type of strategy?
Buy-in (foot in the door) pricing
(T/F) - total cost is the sum of direct and indirect costs of a contract?
True
A cost is _____________ if it is assignable or chargeable to one or more cost objectives.
Allocated
Define Life cycle cost
Total cost of acquiring, operating, supporting and disposing of the items acquired
What type of contracts does Government furnished property apply to?
Competitive Fixed-Price contracts
What requires administrative costs be added to each contract contemplated for evaluation purposes?
What is the monetary value associated?
Multiple awards
$500 for sealed bids
What are adjustments required by law or regulation in order to complete a price evaluation?
Price-related factor
What is it called if a KTR incurs a cost that doesn’t exceed the amount that a prudent person would incur?
Reasonableness
FAR Part 31
Contract Cost Principles and Procedures
FAR Part 10
Market Research
The government will pay for something as long as it is ____________, _______________, and _______________.
Reasonable
Allowable
Allocable
What 3 components are looked at when determining whether something is fair and reasonable?
1) supply and demand
2) competition
3) general economic conditions
Is TINA required when cost analysis is required?
No
(T/F) - Cost analysis is required when TINA is required.
True
(T/F) - A KTR can allocate a direct cost if another cost was incurred for the same purpose or like circumstance.
False
Define direct cost
Cost tied to a single element or one cost objective
Define indirect cost
Cost that can be tied to more than one cost objective
Who prepares an independent government estimate?
The requiring activity
Identify the 5 bases for price analysis and which is the most preferred?
1) other proposed prices (preferred)
2) commercial prices
3) previously proposed prices and contract prices
4) parametric and rough yardsticks
5) independent government estimates
What type of questions would affect historical price comparison?
1) has the product/service been purchased before?
2) what was the historical price?
3) was the historical price fair and reasonable?
4) is the comparison valid?
Costs may be charged as ___________ only or ___________ only.
Direct
Indirect
When may a direct cost be treated as an indirect cost?
WHEN IT:
1) is consistently applied to all final cost objectives
2) produces substantially the same results as treating the cost as a direct cost
When is a cost allocable?
WHEN IT:
1) is incurred specifically for the contract
2) benefits both the contract and other work
3) is necessary to the overall operation of the business
When is a cost allowable?
When it complies with:
1) reasonableness
2) allocability
3) terms of the contract
4) any limitations set forth in FAR Part 31
5) standards promulgated by the CAS Board
What are situations for using price index numbers?
1) inflate/deflate prices or costs for comparison
2) inflate/deflate prices or costs to facilitate trend analysis
3) estimate project price or cost over the period of contract performance
4) adjust contract price or cost for inflation/deflation
How is an Independent Government Estimate prepared?
Utilizing
value analysis (specialized analysis of the function of a product)
AND
visual analysis
Identify the factors that affect comparison
1) market conditions
2) quantities, size, and specs
3) geographical location
4) technology
5) economic factors
6) terms and conditions of a contract
