Price or Cost Analysis Flashcards
1
Q
What factors do contractors consider when making a bid/no bid decision?
A
Contractors consider the risk involved in the work when making a bid/no bid decision.
2
Q
How can the Government increase competition among contractors?
A
The Government can increase competition by reducing or removing unnecessary financial and performance risk to potential offerors.
3
Q
What must contracting professionals strive to do regarding risk?
A
Contracting professionals must strive to reduce financial and performance risk.
4
Q
What do companies expect in relation to profit and risk?
A
Companies expect profit to be commensurate with the financial and performance risk they are expected to bear.
5
Q
Which contract type puts more cost risk on the contractor?
A
Fixed-price contracts put more cost risk on the contractor than cost-reimbursement and time-and-material type contracts.
6
Q
What must the Government consider when selecting a contract type?
A
The Government must consider risk when selecting contract type.
7
Q
What is the relationship between competition and price in government contracting?
A
Competition tends to reduce price.
8
Q
How does the perception of risk affect pricing in government contracting?
A
Higher risk requirements will result in higher prices.
9
Q
How do source selection procedures and contract type affect contractor prices and costs?
A
Source selection procedures and contract type will have a direct effect on how we analyze contractor prices and costs.
10
Q
What is the Government’s best interest regarding contractor competition and risk?
A
To increase competition and reduce contractor’s perceived risk with clear requirements, source selection criteria, and appropriate contract type to get the best value for the Government.
11
Q
What is the process of establishing a reasonable amount to be paid for supplies or services called?
A
Pricing.
12
Q
What does FAR 15.304(c)(1)(i) state regarding price or cost in source selection?
A
Price or cost to the Government shall be evaluated in every source selection.
13
Q
What is the basis for award in a competitive contracting environment?
A
Award will be made to the offeror whose proposal represents the best value where price is a substantial factor in source selection.
14
Q
What defines adequate price competition according to FAR 15.403-1(c)(1)(i)?
A
Two or more responsible offerors, competing independently, submit priced offers that satisfy the Government’s expressed requirement.
15
Q
What must not be found regarding the price of the successful offeror?
A
There must be no finding that the price of the otherwise successful offeror is unreasonable.
16
Q
What is typically used to perform a price analysis for firm-fixed-price contracts?
A
A comparison of the proposed prices based on adequate price competition.
17
Q
True or False: Price to the Government shall be evaluated in every source selection?
A
True
18
Q
What is included in evaluations when contracting on a cost-reimbursement basis according to FAR 15.305(a)(1)?
A
Evaluations shall include a cost realism analysis to determine what the Government should realistically expect to pay for the proposed effort.
19
Q
True or False: Cost realism analysis may not be used on fixed-price incentive contracts.
A
False
20
Q
When can cost realism analyses be used?
A
Cost realism analyses may be used on fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts.
21
Q
What factors should the Government consider in a cost realism analysis?
A
The Government should consider what they realistically expect to pay for the proposed effort, the offeror’s understanding of the work, and the offeror’s ability to perform the contract.
22
Q
True or False: Cost realism analysis must be included when contracting on a cost-reimbursement basis.
A
True
23
Q
What must the contracting officer document when completing a cost or price evaluation?
A
The contracting officer must document the evaluation.
24
Q
What factors must the contracting officer consider when determining reasonable pricing?
A
The contracting officer must consider the terms and conditions (delivery, financing, etc.) of each specific contract.
25
Who is responsible for evaluating and determining the fairness and reasonableness of offered prices?
The contracting officer is responsible for evaluating and determining the fairness and reasonableness of offered prices.
26
What is the objective of proposal analysis according to FAR 15.404-1(a)?
The objective of proposal analysis is to ensure that the final agreed-to price is fair and reasonable.
27
What should a fair and reasonable price consider according to the lesson?
A fair and reasonable price should be fair and reasonable to both the Government and the contractor.
28
What must a price be to be fair to the buyer (Government)?
To be fair to the buyer, a price must be at or below the fair market value or the total allowable cost of providing the contract deliverable.
29
What must a price be to be fair to the seller?
To be fair to the seller, a price must be realistic in terms of the seller's ability to satisfy the terms and conditions of the contract.
30
What risks does an unrealistic price pose to both the seller and the buyer?
An unrealistic price can lead to risks such as cutting corners on product quality, delivering late, defaulting on the contract, or refusing to deal with the Government in the future.
31
What is the role of the contracting officer in determining if a price is fair and reasonable?
The contracting officer is responsible for analyzing and determining if a price is fair and reasonable.
32
What is meant by a 'reasonable price' in contracting?
A reasonable price is a price that a prudent and competent buyer would be willing to pay.
33
What characteristics define a 'prudent' buyer?
A prudent buyer acts with or shows care and thought for the future
34
How do economic forces affect the determination of a reasonable price?
Economic forces such as supply, demand, general economic conditions, and competition change constantly, meaning a price that is reasonable today may not be reasonable tomorrow.
35
What does it mean for a buyer to be 'competent'?
A competent buyer has the necessary ability, knowledge, or skill to do something successfully.
36
What does a contracting professional imply when they determine a price is reasonable?
They imply that they made a decision that is both judicious and wise, based on their ability, knowledge, or skill.
37
What is the purpose of analytical techniques in Proposal Analysis?
Analytical techniques and procedures are used to determine reasonableness and ensure that the final price is fair and reasonable.
38
What factors determine the level of detail required in Proposal Analysis?
The complexity and circumstances of each acquisition should determine the level of detail of the analysis required.
39
Can cost analysis be used for data other than certified cost or pricing data?
Yes, cost analysis may also be used to evaluate data other than certified cost or pricing data to determine cost reasonableness or cost realism.
40
When is price analysis used in Proposal Analysis?
Price analysis is used when certified cost or pricing data are not required to verify that the overall price offered is fair and reasonable.
41
What is the role of cost analysis in Proposal Analysis?
Cost analysis is used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required.
42
What is one purpose of cost analysis?
To evaluate the reasonableness of individual cost elements.
43
What does cost analysis evaluate besides certified cost or pricing data?
Data other than certified cost or pricing data to determine cost reasonableness or cost realism.
44
What is one purpose of price analysis?
To verify that the overall price offered is fair and reasonable.
45
When is cost analysis typically used?
When certified cost or pricing data are not required.
46
How does a contracting officer determine price reasonableness in a sealed bidding approach?
By comparing prices offered and accepting the lowest price proposed from a responsible bidder.
47
What should a contracting officer base price reasonableness on when using Simplified Acquisition Procedures?
Competitive quotations or offers.
48
What is the purpose of evaluating individual cost elements when certified cost or pricing data are not required?
To evaluate the reasonableness of individual cost elements.
49
What must be verified to ensure that the overall price offered is fair and reasonable?
The overall price offered must be verified.
50
What is evaluated to determine cost reasonableness or cost realism when certified cost or pricing data are not available?
Data other than certified cost or pricing data.
51
What are parametric estimating methods in the context of price analysis?
Parametric estimating methods involve the application of rough yardsticks, such as dollars per pound or per horsepower, to assist in price analysis.
52
How can historical prices be utilized in price analysis?
Historical prices paid, whether by the Government or others for the same or similar items, can be compared to the proposed prices as part of the price analysis.
53
What type of data can be analyzed other than certified cost or pricing data?
Data other than certified cost or pricing data provided by the offeror can be analyzed as part of the price analysis process.
54
What is one method used in price analysis to establish a fair and reasonable price?
One method is the comparison of proposed prices received in response to the solicitation, where adequate price competition typically establishes a fair and reasonable price.
55
What is the primary purpose of price analysis according to FAR 15.404-1(b)?
The primary purpose of price analysis is to examine and evaluate a proposed price without evaluating its separate cost elements and proposed profit, ensuring a fair and reasonable price.
56
What is the significance of market research in price analysis?
Market research is used to compare proposed prices with prices obtained for the same or similar items, contributing to the evaluation of price reasonableness.
57
What role do independent Government cost estimates play in price analysis?
Proposed prices are compared with independent Government cost estimates to help determine if the proposed prices are fair and reasonable.
58
What is price analysis in the context of contract pricing?
Price analysis is an analysis of the offeror's total proposed contract price using one or more techniques, without evaluating the underlying direct, indirect costs, or profit.
59
What types of contracts can price analysis be completed on?
Price analysis may be completed on fixed-price, cost-reimbursement, and time-and-materials contract types.
60
What is the definition of Cost Analysis according to the FAR?
Cost Analysis is the review and evaluation of separate cost elements and profit or fee in an offeror’s or contractor’s proposal, performed to determine a fair and reasonable price or cost realism.
61
What is the purpose of performing Cost Analysis?
The purpose of performing Cost Analysis is to evaluate the reasonableness of individual cost elements and determine a fair and reasonable price.
62
What is the overall goal of cost analysis?
The overall goal of cost analysis is to determine whether the price is reasonable (not too high) and if the underlying costs are realistic (not too low).
63
What is the primary focus of Cost Analysis compared to Price Analysis?
Cost Analysis focuses on analyzing each individual cost element, including the contractor's profit or fee, while Price Analysis focuses on the contractor's bottom line.
64
What are the requirements for a cost to be considered allowable according to FAR 31.201-2?
A cost is allowable only when it complies with reasonableness, allocability, cost accounting standards or generally accepted accounting principles, terms of the contract, and the limitations set forth in FAR subpart 31.2.
65
What factors determine if a cost is considered 'reasonable' under FAR 31.201-3?
The term 'reasonable' depends on considerations such as whether the cost is ordinary and necessary for business or contract performance, adherence to generally accepted sound business practices, arm's-length bargaining, and compliance with Federal and State laws and regulations.
66
What does 'expressly unallowable' mean in the context of FAR 31.201-2(a)?
'Expressly unallowable' refers to costs that are clearly stated as unallowable under the cost principles outlined in FAR.
67
What are some characteristics of costs that are considered unallowable?
Costs are unallowable if they deviate from the contractor’s established practices, are incurred specifically for the contract, benefit both the contract and other work without a reasonable distribution, or are necessary for overall business operation without a direct relationship to a specific cost objective.
68
What is an example of mutually agreed unallowable costs?
An example of mutually agreed unallowable costs would be those costs that are unallowable according to the terms and conditions of the contract.
69
How can costs be designated as unallowable?
Costs can be designated as unallowable as a result of a written decision by the contracting officer.
70
What are unallowable costs as defined by FAR 31.201-6?
Unallowable costs are those that are expressly unallowable or mutually agreed to be unallowable, and must be identified and excluded from any billing, claim, or proposal applicable to a Government contract.
71
What does it mean for a cost to be 'allocable' according to FAR 31.201-4?
A cost is 'allocable' if it is assignable or chargeable to one or more cost objectives based on relative benefits received or other equitable relationships.
72
According to FAR 31.202, what types of costs can be considered direct costs?
Direct costs may include manufacturing supplies and equipment.
73
What defines a direct cost in contract costing?
A direct cost is any cost that can be identified specifically with a particular final cost objective and cannot be charged to another contract or effort.
74
What is the total cost of a contract composed of?
The total cost of a contract is the sum of the direct and indirect costs allocable to the contract, incurred or to be incurred, plus any allocable cost of money, less any allocable credits.
75
What is a direct cost and can you give an example?
A direct cost is a cost that cannot be charged to another contract or effort other than the contract to which it is being charged. An example of a direct cost is the hours worked by a software engineer on a program for a specific contract, which are directly chargeable to that contract as direct labor costs.
76
What is an indirect cost?
An indirect cost is any cost not directly identified with a single, final cost objective or contract, but identified with two or more final cost objectives or an intermediate cost objective.
77
What is the purpose of structured approaches for analyzing profit or fee?
Structured approaches for analyzing profit or fee provide a discipline for ensuring all relevant factors are considered.
78
Why should profit or fee be analyzed during cost analysis according to FAR 15.404-4?
Profit or fee should be analyzed because extremely low profits, use of historical averages, or automatic application of predetermined percentages to total estimated costs do not provide proper motivation for optimum contract performance.
79
What are the three categories of indirect costs as defined in FAR 31.203(b)?
The three categories of indirect costs are Employee benefits, Overhead, and General and Administrative (G&A) costs.
80
What factor should be considered by contracting officers in analyzing profit according to FAR 15.404-4(d)?
Contractor effort should be considered, with greater profit opportunity provided under contracts requiring a high degree of professional and managerial skill.
81
What recognition may contractors receive for independent development efforts relevant to the contract end item?
Contractors may be provided additional profit opportunities in recognition of independent development efforts without Government assistance.
82
What additional profit opportunities are allowed for contractors who have demonstrated effective cost control?
Additional profit opportunities may be provided to contractors that have previously demonstrated their ability to perform similar tasks effectively and economically.
83
How should contractors be compensated for assuming greater cost risks according to the Weighted Guidelines Method?
Contractors should be proportionately compensated for assuming greater cost risks.
84
What does the Weighted Guidelines Method take into account regarding capital investments?
It takes into account the contribution of contractor investments to efficient and economical contract performance.
85
What is the DoD's structured approach to profit analysis called?
The Weighted Guidelines Method
86
What are the four profit factors focused on by the Weighted Guidelines Method?
1. Performance risk
87
What profit opportunity is provided to contractors that display unusual initiative in federal socioeconomic programs?
Greater profit opportunity should be provided to those contractors.
88
In what situation may cost analysis be used when price analysis is not sufficient?
Cost analysis may be used to determine FAR or to perform cost realism when price analysis is not sufficient on 'data other than.'
89
When shall cost analysis be used?
Cost analysis shall be used when certified cost or pricing data are required.
90
What is the purpose of performing cost analysis in conjunction with price analysis?
Cost analysis should be performed to verify that the overall price offered is fair and reasonable.
91
Where is Cost Realism Analysis discussed in the FAR?
Cost Realism Analysis is discussed in the FAR at FAR 15.404-1(d).
92
On what type of contracts should cost realism analyses be performed?
Cost realism analyses shall be performed on cost-reimbursement contracts.
93
What is meant by 'Probable Cost' in the context of Cost Realism Analysis?
'Probable Cost' refers to the estimated cost of contract performance determined through a cost realism analysis of each offer.
94
What is the purpose of Cost Realism Analysis in contract pricing?
Cost Realism Analysis is used to independently review and evaluate proposed cost elements to determine if they are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the methods and materials described in the offeror's technical proposal.
95
What is used in the evaluation of the best value to the Government among offers?
The probable cost, not the proposed cost (if different), is used in the evaluation of the best value to the Government among offers.
96
How is the probable cost determined for each offer?
The probable cost is determined by adjusting each offeror’s proposed cost and fee, when appropriate, to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis.
97
What should the probable cost estimate reflect?
The probable cost estimate should reflect the best estimate of the cost of any contract that is most likely to result from the offeror's proposal.
98
Why is it important to analyze offerors' proposals using Probable Cost?
Analyzing offerors' proposals using Probable Cost is important because it helps account for differences when an offered cost is substantially above or below the best should cost estimate. In cost-reimbursement contracting, an unreasonably low cost estimate may lead to a higher final price since the Government reimburses all allowable costs.
99
What is the purpose of the Truth in Negotiations Act (TINA)?
The purpose of TINA is to provide contracting officers with the necessary data to determine a fair and reasonable price.
100
What types of data can be used to determine a fair and reasonable price according to TINA?
Readily available market data such as catalog prices, commercial pricing, and comparison of competitive offers can be used.
101
What challenges might arise when determining a fair and reasonable price?
In certain situations, determining a fair and reasonable price can be challenging, requiring additional data and analysis.
102
What type of data does TINA require contractors to provide?
TINA requires contractors to provide actual costs and cost estimates in the form of certified cost or pricing data.
103
What does TINA empower the Contracting Officer to do?
TINA empowers the Contracting Officer with the ability to obtain the data needed to determine a fair and reasonable price when normal market forces are not present.
104
How does TINA assist the contracting officer?
TINA assists the contracting officer in determining fair and reasonable prices.
105
What is the definition of Cost or Pricing Data according to FAR 2.101?
Cost or pricing data means all facts that, as of the date of price agreement, or an earlier date agreed upon, that prudent buyers and sellers would reasonably expect to affect price negotiations significantly. They are factual, verifiable, and include data forming the basis for judgment about estimated future costs.
106
What types of data are included in Cost or Pricing Data?
Cost or pricing data include all facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred, beyond just historical accounting data.
107
Are Cost or Pricing Data judgmental or factual?
Cost or pricing data are factual, not judgmental
108
What is required by the contracting officer when data currently available is insufficient to make a fair and reasonable determination?
The contracting officer will require additional data, including certified cost or pricing data, to establish a fair and reasonable price.
109
Under what circumstances must certified cost or pricing data be obtained according to FAR 15.402(a)?
Certified cost or pricing data must be obtained for the award of any negotiated contract, award of a subcontract at any tier if required, and modification of any sealed bid or negotiated contract.
110
What actions require the submission of certified cost or pricing data according to FAR 15.403-4?
Submission of certified cost or pricing data is required before actions expected to exceed the current threshold or the threshold specified in the contract, unless an exception applies.
111
What should the contracting officer obtain when certified cost or pricing data are not required?
The contracting officer will obtain data other than certified cost or pricing data as necessary to establish a fair and reasonable price.
112
According to FAR 2.101, what types of data are considered factual in the context of contract adjustments?
Cost or pricing data are considered factual.
113
What conditions must be met for a price to be considered based on adequate price competition?
A price is based on adequate price competition when there are offers from two or more responsible offerors competing independently, the award is made on best value where price is a substantial factor, and the price is not found to be unreasonable.
114
Under what circumstances is certified cost or pricing data not required?
Certified cost or pricing data shall not be obtained for acquisitions at or below the simplified acquisition threshold, or when an exception applies.
115
What are the exceptions to obtaining certified cost or pricing data according to FAR 15.403-1(b)?
Exceptions include situations where the information includes all facts that may or may not affect price negotiations, is judgmental, or may not be verifiable.
116
What is the simplified acquisition threshold as defined in FAR 2.101?
The simplified acquisition threshold is a dollar value that determines when certified cost or pricing data is required. As of the latest update, it is set at $250,000, but this value can change based on policy updates.
117
What does the Certificate of Current Cost or Pricing Data certify?
The Certificate of Current Cost or Pricing Data certifies that the data is current, accurate, and complete.
118
What must a contractor submit when certified cost or pricing data are required according to FAR 15.403?
The contractor must submit the certified cost or pricing data, data other than certified cost or pricing data required by the contracting officer, and a Certificate of Current Cost or Pricing Data in the appropriate format prescribed by the FAR.
119
What happens if certified cost or pricing data are submitted but an exception is later found to apply?
If an exception is found to apply, the data must not be considered certified cost or pricing data and must not be certified.
120
What are the exceptions to obtaining certified cost or pricing data?
Based on historical prices paid, Current, Complete, Accurate, Adequate price competition, Commercial items.
121
What is data other than certified cost or pricing data?
It includes pricing data, cost data, and judgmental information necessary for the contracting officer to determine a fair and reasonable price or to determine cost realism. This data may include identical types of data as certified cost or pricing data, consistent with Table 15-2 of 15.408, but without the certification.
122
What must a contracting officer do according to FAR 15.402 when establishing the reasonableness of offered prices?
The contracting officer must obtain certified cost or pricing data when required, along with data other than certified cost or pricing data as necessary to establish a fair and reasonable price.
123
What must a contracting officer do in acquisitions that do not require certified cost or pricing data?
The contracting officer shall obtain whatever data are available from Government or other secondary sources and use that data in determining a fair and reasonable price.
124
What factors should be included in the estimating process according to FAR 15.403-3?
The judgmental factors applied, the mathematical or other methods used in the estimate, and the nature and amount of any contingencies included in the proposed price.
125
When can a contracting officer require data other than certified cost or pricing data?
When adequate data from sources other than the offeror are not available, and only to the extent necessary to determine a fair and reasonable price.
126
What happens if a contractor does not comply with a requirement to submit data for a contract or subcontract?
The contractor will be ineligible for award.
127
Before burdening contractors with providing data, where shall the contracting officer first obtain data to determine a fair and reasonable price?
From the Government or other secondary sources.
128
When certified cost or pricing data are not required, why would you obtain data other than certified cost or pricing data?
To establish a fair and reasonable price.
129
Does the inclusion of a price in a catalog automatically make it fair and reasonable?
No, the fact that a price is included in a catalog does not, in and of itself, make it fair and reasonable.
130
What should a contracting officer do if data from sources other than the offeror are insufficient to determine price reasonableness?
The contracting officer will require the offeror to submit data other than certified cost or pricing data to support further analysis.
131
What must a contracting officer use to determine if the price of a commercial item is fair and reasonable?
The contracting officer must use price analysis.
132
What should the contracting officer limit requests for sales data relating to commercial items to?
The contracting officer shall limit requests for sales data to data for the same or similar items during a relevant time period.
133
What is unbalanced pricing as defined by FAR 15.404-1(g)?
Unbalanced pricing occurs when the overall price appears reasonable, but cost/price analysis indicates that the price of one or more contract line items is significantly over or understated.
134
What is a potential consequence of ordering more items with inflated prices?
The Government risks overpaying as it orders more of the items with inflated prices.
135
What is contract cost risk in the context of unbalanced pricing?
Contract cost risk is a measure of risk that contractors assume when they contract with the Government, particularly in scenarios of unbalanced pricing.
136
What are indications of possible unbalanced pricing in government contracts?
Indications include high start-up costs, base year prices significantly higher than option prices, and high-order items priced higher while low-order items are priced much lower.
137
What risk does the Government face due to unbalanced pricing?
The Government risks overpaying up front for services and may face diminished contractor performance incentives.
138
How are time-and-materials and labor-hour contracts treated in terms of cost risk?
They are treated as cost-plus-fixed-fee contracts.
139
How is contract cost risk defined in relation to contract types?
Contract cost risk is the degree of cost responsibility and associated risk a contractor will assume based on the contract type and the reliability of the cost estimate.
140
What is the contractor's risk in a cost-plus-fixed-fee contract?
The contractor assumes the least cost risk.
141
In which type of contract does a contractor assume the greatest cost risk?
Firm-fixed-price contract
142
What should contracting officers consider when choosing a contract type?
They should closely look at the risks they are asking a contractor to accept for timely, cost-effective, and efficient performance.
143
What indicates that the price of one or more contract line items is significantly over or understated in unbalanced pricing?
The overall price appears reasonable but detailed analysis indicates the discrepancy.
144
What should a contracting officer use to establish cost or price fairness and reasonableness?
All available data.
145
What characteristics must the range of minimum and maximum prices or costs have?
They must be fair and reasonable as determined by all available information.
146
What must a contracting officer determine before entering into negotiations?
A range of cost or price they are willing to pay for a given service or product, known as prenegotiation objectives (PNO).
147
What should be discussed regarding contractor systems in the PNM?
The current status of any contractor systems, such as purchasing, estimating, accounting, and compensation, should be discussed to the extent they affected and were considered in the negotiation.
148
How should the PNM address the reliance on certified cost or pricing data?
The PNM should state the extent to which the contracting officer relied on the certified cost or pricing data submitted and how it was used in negotiating the price.
149
What significant facts must be summarized in the PNM regarding prenegotiation objectives?
The most significant facts or considerations controlling the establishment of the prenegotiation objectives and the negotiated agreement must be summarized, including any significant differences between the two positions.
150
What elements must be documented in the Price Negotiation Memorandum according to FAR 15.406-3(a)?
The elements include the purpose of the negotiation, acquisition description, participant details, contractor system statuses, exceptions for certified cost or pricing data, reliance on such data, a summary of the contractor’s proposal, significant facts for prenegotiation objectives, and impacts of direction from higher authorities.
151
What is the purpose of the Price Negotiation Memorandum (PNM) in documenting negotiations?
The PNM documents the principal elements of the negotiated agreement, including the purpose of the negotiation, acquisition details, participant information, contractor system statuses, and reliance on certified cost or pricing data.
152
What must be included in the PNM if certified cost or pricing data were not required?
The PNM must include the exception used and the basis for it if certified cost or pricing data were not required for any price negotiation exceeding the threshold.
153
What is the basis for the profit or fee Pre-negotiation Objective?
The basis for the profit or fee Pre-negotiation Objective is the profit or fee negotiated.
154
What documentation is required to support fair and reasonable pricing?
Documentation of fair and reasonable pricing is required.
