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SUBPART 215.4--CONTRACT PRICING

(Revised June 21, 2005)

 

 



 215.403 Obtaining cost or pricing data
 215.403-1 Prohibition on obtaining cost or pricing data
 215.403-5 Instructions for submission of cost or pricing data or information other than cost or pricing data
 215.404 Proposal analysis
 215.404-1 Proposal analysis techniques
 215.404-2 Information to support proposal analysis
 215.404-3 Subcontract pricing considerations
 215.404-4 Profit
 215.404-70 DD Form 1547, Record of Weighted Guidelines Method Application
 215.404-71 Weighted guidelines method
 215.404-71-1 General
 215.404-71-2 Performance risk
 215.404-71-3 Contract type risk and working capital adjustment
 215.404-71-4 Facilities capital employed
 215.404-71-5 Cost efficiency factor
 215.404-72 Modified weighted guidelines method for nonprofit organizations other than FFRDCs
 215.404-73 Alternate structured approaches
 215.404-74 Fee requirements for cost-plus-award-fee contracts
 215.404-75 Fee requirements for FFRDCs
 215.404-76 Reporting profit and fee statistics
 215.406-1 Prenegotiation objectives
 215.406-3 Documenting the negotiation
 215.407-2 Make-or-buy programs
 215.407-3 Forward pricing rate agreements
 215.407-4 Should-cost review
 215.407-5 Estimating systems
 215.407-5-70 Disclosure, maintenance, and review requirements
 215.408 Solicitation provisions and contract clauses
 215.470 Estimated data prices


215.403  Obtaining
cost or pricing data.

 

215.403-1  Prohibition on obtaining cost or pricing data.

 

      (c)  Standards for exceptions from cost or pricing data requirements.

 

              (1)  Adequate price competition.  For acquisitions under dual or multiple source programs:

 

                    (A)  The determination of adequate price competition must be made on a case-by-case basis.  Even when adequate price competition exists, in certain cases it may be appropriate to obtain additional information to assist in price analysis.

 

                    (B)  Adequate price competition normally exists when¾

 

                            (i)  Prices are solicited across a full range of step quantities, normally including a 0-100 percent split, from at least two offerors that are individually capable of producing the full quantity; and

 

                            (ii)  The reasonableness of all prices awarded is clearly established on the basis of price analysis (see FAR 15.404-1(b)).

 

              (4)  Waivers.

 

                    (A)  DoD has waived the requirement for submission of cost or pricing data for the Canadian Commercial Corporation and its subcontractors.

 

                    (B)  DoD has waived cost or pricing data requirements for nonprofit organizations (including educational institutions) on cost-reimbursement-no-fee contracts.  The contracting officer shall require¾

 

                            (1)  Submission of information other than cost or pricing data to the extent necessary to determine price reasonableness and cost realism; and

 

                            (2)  Cost or pricing data from subcontractors that are not nonprofit organizations when the subcontractor’s proposal exceeds the cost or pricing data threshold at FAR 15.403-4(a)(1).

 

215.403-5  Instructions for submission of cost or pricing data or information other than cost or pricing data.

 

      (b)  When the solicitation requires contractor compliance with the Contractor Cost Data Reporting (CCDR) System (Army - AMCP 715-8, Navy - NAV PUB P-5241, and Air Force - AFMCP 800-15), require the contractor to submit DD Form 1921 or 1921-1 with its pricing proposal.

 

215.404  Proposal analysis.

 

215.404-1  Proposal analysis techniques.

 

      (a)  General.  For spare parts or support equipment, perform an analysis of¾

 

              (i)  Those line items where the proposed price exceeds by 25 percent or more the lowest price the Government has paid within the most recent 12-month period based on reasonably available information;

 

              (ii)  Those line items where a comparison of the item description and the proposed price indicates a potential for overpricing;

 

              (iii)  Significant high-dollar-value items.  If there are no obvious high-dollar-value items, include an analysis of a random sample of items; and

 

              (iv)  A random sample of the remaining low-dollar value items.  Sample size may be determined by subjective judgment, e.g., experience with the offeror and the reliability of its estimating and accounting systems.

 

      (d)  Cost realism analysis.  The contracting officer should determine what information other than cost or pricing data is necessary for the cost realism analysis during acquisition planning and development of the solicitation.  Unless such information is available from sources other than the offerors (see FAR 15.402(a)(2)), the contracting officer will need to request data from the offerors.  The contracting officer¾

 

              (i)  Shall request only necessary data; and

 

              (ii)  May not request submission of cost or pricing data.

 

215.404-2  Information to support proposal analysis.

 

      (a)  Field pricing assistance.

 

              (i)  The contracting officer should consider requesting field pricing assistance for—

 

                    (A)  Fixed-price proposals exceeding the cost or pricing data threshold;

 

                    (B)  Cost-type proposals exceeding the cost or pricing data threshold from offerors with significant estimating system deficiencies (see 215.407-5-70(a)(4) and (c)(2)(i)); or

 

                    (C)  Cost-type proposals exceeding $10 million from offerors without significant estimating system deficiencies.

 

              (ii)  The contracting officer should not request field pricing support for proposed contracts or modifications in an amount less than that specified in paragraph (a)(i) of this subsection.  An exception may be made when a reasonable pricing result cannot be established because of—

 

                    (A)  A lack of knowledge of the particular offeror; or

                    (B)  Sensitive conditions (e.g., a change in, or unusual problems with, an offeror’s internal systems).

 

      (c)  Audit assistance for prime contracts or subcontracts.

 

              (i)  If, in the opinion of the contracting officer or auditor, the review of a prime contractor's proposal requires further review of subcontractors' cost estimates at the subcontractors' plants (after due consideration of reviews performed by the prime contractor), the contracting officer should inform the administrative contracting officer (ACO) having cognizance of the prime contractor before the review is initiated.

 

              (ii)  Notify the appropriate contract administration activities when extensive, special, or expedited field pricing assistance will be needed to review and evaluate subcontractors' proposals under a major weapon system acquisition. If audit reports are received on contracting actions that are subsequently cancelled, notify the cognizant auditor in writing.

 

215.404-3  Subcontract pricing considerations.

 

      (a)(i)  When obtaining field pricing assistance on a prime contractor’s proposal, the contracting officer should request audit or field pricing assistance to analyze and evaluate the proposal of a subcontractor at any tier (notwithstanding availability of data or analyses performed by the prime contractor) if the contracting officer believes that such assistance is necessary to ensure the reasonableness of the total proposed price.  Such assistance may be appropriate when, for example¾

 

                    (A)  There is a business relationship between the contractor and the subcontractor not conducive to independence and objectivity;

 

                    (B)  The contractor is a sole source supplier and the subcontract costs represent a substantial part of the contract cost;

 

                    (C)  The contractor has been denied access to the subcontractor’s records;

 

                    (D)  The contracting officer determines that, because of factors such as the size of the proposed subcontract price, audit or field pricing assistance for a subcontract at any tier is critical to a fully detailed analysis of the prime contractor’s proposal;

 

                    (E)  The contractor or higher-tier subcontractor has been cited for having significant estimating system deficiencies in the area of subcontract pricing, especially the failure to perform adequate cost analyses of proposed subcontract costs or to perform subcontract analyses prior to negotiation of the prime contract with the Government; or

 

                    (F)  A lower-tier subcontractor has been cited as having significant estimating system deficiencies.

 

              (ii)  It may be appropriate for the contracting officer or the ACO to provide assistance to a contractor or  subcontractor at any tier, when the contractor or higher-tier subcontractor has been denied access to a subcontractor’s records in carrying out the responsibilities at FAR 15.404-3 to conduct price or cost analysis to determine the reasonableness of proposed subcontract prices.  Under these circumstances, the contracting officer or the ACO should consider whether providing audit or field pricing assistance will serve a valid Government interest.

 

              (iii)  When DoD performs the subcontract analysis, DoD shall furnish to the prime contractor or higher-tier subcontractor, with the consent of the subcontractor reviewed, a summary of the analysis performed in determining any unacceptable costs included in the subcontract proposal.  If the subcontractor withholds consent, DoD shall furnish a range of unacceptable costs for each element in such a way as to prevent disclosure of subcontractor proprietary data.

 

              (iv)  Price redeterminable or fixed-price incentive contracts may include subcontracts placed on the same basis.  When the contracting officer wants to reprice the prime contract even though the contractor has not yet established final prices for the subcontracts, the contracting officer may negotiate a firm contract price—

 

                    (A)  If cost or pricing data on the subcontracts show the amounts to be reasonable and realistic; or

 

                    (B)  If cost or pricing data on the subcontracts are too indefinite to determine whether the amounts are reasonable and realistic, but—

 

                            (1)  Circumstances require prompt negotiation; and

 

                            (2)  A statement substantially as follows is included in the repricing modification of the prime contract:

 

As soon as the Contractor establishes firm prices for each subcontract listed below, the Contractor shall submit (in the format and with the level of detail specified by the Contracting Officer) to the Contracting Officer the subcontractor's cost incurred in performing the subcontract and the final subcontract price.  The Contractor and Contracting Officer shall negotiate an equitable adjustment in the total amount paid or to be paid under this contract to reflect the final subcontract price.

 

              (v)  If the selection of the subcontractor is based on a trade-off among cost or price and other non-cost factors rather than lowest price, the analysis supporting subcontractor selection should include a discussion of the factors considered in the selection (also see FAR 15.101 and 15.304 and 215.304).  If the contractor’s analysis is not adequate, return it for correction of deficiencies.

 

              (vi)  The contracting officer shall make every effort to ensure that fees negotiated by contractors for cost-plus-fixed-fee subcontracts do not exceed the fee limitations in FAR 15.404-4(c)(4).

 

215.404-4  Profit.

 

      (b)  Policy.

 

              (1)  Departments and agencies must use a structured approach for developing a prenegotiation profit or fee objective on any negotiated contract action when cost or pricing data is obtained, except for cost-plus-award-fee contracts (see 215.404-74) or contracts with Federally Funded Research and Development Centers (FFRDCs) (see 215.404-75).  There are three structured approaches¾

 

                    (A)  The weighted guidelines method;

 

                    (B)  The modified weighted guidelines method; and

 

                    (C)  An alternate structured approach.

 

      (c)  Contracting officer responsibilities.

 

              (1)  Also, do not perform a profit analysis when assessing cost realism in competitive acquisitions.

 

              (2)  When using a structured approach, the contracting officer—

 

                    (A)  Shall use the weighted guidelines method (see 215.404-71), except as provided in paragraphs (c)(2)(B) and (c)(2)(C) of this subsection.

 

                    (B)  Shall use the modified weighted guidelines method (see 215.404-72) on contract actions with nonprofit organizations other than FFRDCs.

 

                    (C)  May use an alternate structured approach (see 215.404-73) when¾

 

                            (1)  The contract action is¾

 

                                    (i)  At or below the cost or pricing data threshold (see FAR 15.403-4(a)(1));

 

                                    (ii)  For architect-engineer or construction work;

 

                                    (iii)  Primarily for delivery of material from subcontractors; or

 

                                    (iv)  A termination settlement; or

 

                            (2)  The weighted guidelines method does not produce a reasonable overall profit objective and the head of the contracting activity approves use of the alternate approach in writing.

 

                    (D)  Shall use the weighted guidelines method to establish a basic profit rate under a formula-type pricing agreement, and may then use the basic rate on all actions under the agreement, provided that conditions affecting profit do not change.

 

                    (E)  Shall document the profit analysis in the contract file.

 

              (5)  Although specific agreement on the applied weights or values for individual profit factors shall not be attempted, the contracting officer may encourage the contractor to¾

 

                    (A)  Present the details of its proposed profit amounts in the weighted guidelines format or similar structured approach; and

 

                    (B)  Use the weighted guidelines method in developing profit objectives for negotiated subcontracts.

 

              (6)  The contracting officer must also verify that relevant variables have not materially changed (e.g., performance risk, interest rates, progress payment rates, distribution of facilities capital).

 

      (d)  Profit-analysis factors.

 

              (1)  Common factors.  The common factors are embodied in the DoD structured approaches and need not be further considered by the contracting officer.

 

215.404-70  DD Form 1547, Record of Weighted Guidelines Method Application.

 

      (a)  The DD Form 1547—

 

              (1)  Provides a vehicle for performing the analysis necessary to develop a profit objective;

 

              (2)  Provides a format for summarizing profit amounts subsequently negotiated as part of the contract price; and

 

              (3)  Serves as the principal source document for reporting profit statistics to DoD's management information system.

 

      (b)  The military departments are responsible for establishing policies and procedures for feeding the DoD-wide management information system on profit and fee statistics (see 215.404-75).

 

      (c)  The contracting officer shall—

 

              (1)  Use and prepare a DD Form 1547 whenever a structured approach to profit analysis is required by 215.404-4(b) (see 215.404-71, 215.404-72, and 215.404-73 for guidance on using the structured approaches).  Administrative instructions for completing the form are in 253.215-70.

 

              (2)  Ensure that the DD Form 1547 is accurately completed.  The contracting officer is responsible for the correction of any errors detected by the management system auditing process.

 

215.404-71  Weighted guidelines method.

 

215.404-71-1  General.

 

      (a)  The weighted guidelines method focuses on four profit factors—

 

              (1)  Performance risk;

 

              (2)  Contract type risk;

 

              (3)  Facilities capital employed; and

 

              (4)  Cost efficiency.

 

      (b)  The contracting officer assigns values to each profit factor; the value multiplied by the base results in the profit objective for that factor.  Except for the cost efficiency special factor, each profit factor has a normal value and a designated range of values.  The normal value is representative of average conditions on the prospective contract when compared to all goods and services acquired by DoD.  The designated range provides values based on above normal or below normal conditions.  In the price negotiation documentation, the contracting officer need not explain assignment of the normal value, but should address conditions that justify assignment of other than the normal value.  The cost efficiency special factor has no normal value.  The contracting officer shall exercise sound business judgment in selecting a value when this special factor is used (see 215.404-71-5).

 

215.404-71-2  Performance risk.

 

      (a)  Description.  This profit factor addresses the contractor's degree of risk in fulfilling the contract requirements.  The factor consists of two parts:

 

              (1)  Technical--the technical uncertainties of performance.

 

              (2)  Management/cost control--the degree of management effort necessary--

 

                    (i)  To ensure that contract requirements are met; and

 

                    (ii)  To reduce and control costs.

 

      (b)  Determination.  The following extract from the DD Form 1547 is annotated to describe the process.

 

 

 

Assigned

Assigned

Base

Profit

Item

Contractor Risk Factors

Weighting

Value

(Item 20)

Objective

21.

Technical

(1)

(2)

N/A

N/A

22.

Management/

Cost Control

(1)

(2)

N/A

N/A

23.

Performance Risk

(Composite)

N/A

(3)

(4)

(5)

 

 

 

 

 

 

 

              (1)  Assign a weight (percentage) to each element according to its input to the total performance risk.  The total of the two weights equals 100 percent.

 

              (2)  Select a value for each element from the list in paragraph (c) of this subsection using the evaluation criteria in paragraphs (d) and (e) of this subsection.

 

              (3)  Compute the composite as shown in the following example:

 

 

Assigned Weighting

Assigned Value

Weighted Value

Technical

 

60%

 

5.0%

 

3.0%

Management/

Cost Control

 

40%

 

4.0%

 

1.6%

 

 

 

 

 

 

 

Composite Value

 

100%

 

 

 

4.6%

 

              (4)  Insert the amount from Block 20 of the DD Form 1547.  Block 20 is total contract costs, excluding facilities capital cost of money.

 

              (5)  Multiply (3) by (4).

 

      (c)  Values:  Normal and designated ranges.

 

 

Normal Value

Designated Range

Standard

5%

3% to 7%

Technology Incentive

9%

7% to 11%

 

              (1)  Standard.  The standard designated range should apply to most contracts.

 

              (2)  Technology incentive.  For the technical factor only, contracting officers may use the technology incentive range for acquisitions that include development, production, or application of innovative new technologies.  The technology incentive range does not apply to efforts restricted to studies, analyses, or demonstrations that have a technical report as their primary deliverable.

 

      (d)  Evaluation criteria for technical.

 

              (1)  Review the contract requirements and focus on the critical performance elements in the statement of work or specifications.  Factors to consider include—

 

                    (i)  Technology being applied or developed by the contractor;

 

                    (ii)  Technical complexity;

 

                    (iii)  Program maturity;

 

                    (iv)  Performance specifications and tolerances;

 

                    (v)  Delivery schedule; and

 

                    (vi)  Extent of a warranty or guarantee.

 

              (2)  Above normal conditions.

 

                    (i)  The contracting officer may assign a higher than normal value in those cases where there is a substantial technical risk.  Indicators are—

 

                            (A)  Items are being manufactured using specifications with stringent tolerance limits;

 

                            (B)  The efforts require highly skilled personnel or require the use of state-of-the-art machinery;

 

                            (C)  The services and analytical efforts are extremely important to the Government and must be performed to exacting standards;

 

                            (D)  The contractor's independent development and investment has reduced the Government's risk or cost;

 

                            (E)  The contractor has accepted an accelerated delivery schedule to meet DoD requirements; or

 

                            (F)  The contractor has assumed additional risk through warranty provisions.

 

                    (ii)  Extremely complex, vital efforts to overcome difficult technical obstacles that require personnel with exceptional abilities, experience, and professional credentials may justify a value significantly above normal.

 

                    (iii)  The following may justify a maximum value—

 

                            (A)  Development or initial production of a new item, particularly if performance or quality specifications are tight; or

 

                            (B)  A high degree of development or production concurrency.

 

              (3)  Below normal conditions.

 

                    (i)  The contracting officer may assign a lower than normal value in those cases where the technical risk is low.  Indicators are—

 

                            (A)  Requirements are relatively simple;

 

                            (B)  Technology is not complex;

 

                            (C)  Efforts do not require highly skilled personnel;

 

                            (D)  Efforts are routine;

 

                            (E)  Programs are mature; or

 

                            (F)  Acquisition is a follow-on effort or a repetitive type acquisition.

 

                    (ii)  The contracting officer may assign a value significantly below normal for—

 

                            (A)  Routine services;

 

                            (B)  Production of simple items;

 

                            (C)  Rote entry or routine integration of Government-furnished information; or

 

                            (D)  Simple operations with Government-furnished property.

 

              (4)  Technology incentive range.

 

                    (i)  The contracting officer may assign values within the technology incentive range when contract performance includes the introduction of new, significant technological innovation.  Use the technology incentive range only for the most innovative contract efforts.  Innovation may be in the form of--

 

                            (A)  Development or application of new technology that fundamentally changes the characteristics of an existing product or system and that results in increased technical performance, improved reliability, or reduced costs; or

 

                            (B)  New products or systems that contain significant technological advances over the products or systems they are replacing.

 

                    (ii)  When selecting a value within the technology incentive range, the contracting officer should consider the relative value of the proposed innovation to the acquisition as a whole.  When the innovation represents a minor benefit, the contracting officer should consider using values less than the norm.  For innovative efforts that will have a major positive impact on the product or program, the contracting officer may use values above the norm.

 

      (e)  Evaluation criteria for management/cost control.

 

              (1)  The contracting officer should evaluate--

 

                    (i)  The contractor's management and internal control systems using contracting office information and reviews made by field contract administration offices or other DoD field offices;

 

                    (ii)  The management involvement expected on the prospective contract action;

 

                    (iii)  The degree of cost mix as an indication of the types of resources applied and value added by the contractor;

 

                    (iv)  The contractor's support of Federal socioeconomic programs;

 

                    (v)  The expected reliability of the contractor's cost estimates (including the contractor's cost estimating system);

 

                    (vi)  The adequacy of the contractor's management approach to controlling cost and schedule; and

 

                    (vii)  Any other factors that affect the contractor's ability to meet the cost targets (e.g., foreign currency exchange rates and inflation rates).

 

              (2)  Above normal conditions.

 

                    (i)  The contracting officer may assign a higher than normal value when there is a high degree of management effort.  Indicators of this are—

 

                            (A)  The contractor's value added is both considerable and reasonably difficult;

 

                            (B)  The effort involves a high degree of integration or coordination;

 

                            (C)  The contractor has a good record of past performance;

 

                            (D)  The contractor has a substantial record of active participation in Federal socioeconomic programs;

 

                            (E)  The contractor provides fully documented and reliable cost estimates;

 

                            (F)  The contractor makes appropriate make-or-buy decisions; or

 

                            (G)  The contractor has a proven record of cost tracking and control.

 

                    (ii)  The contracting officer may justify a maximum value when the effort—

 

                            (A)  Requires large scale integration of the most complex nature;

 

                            (B)  Involves major international activities with significant management coordination (e.g., offsets with foreign vendors); or

 

                            (C)  Has critically important milestones.

 

              (3)  Below normal conditions.

 

                    (i)  The contracting officer may assign a lower than normal value when the management effort is minimal.  Indicators of this are—

 

                            (A)  The program is mature and many end item deliveries have been made;

 

                            (B)  The contractor adds minimal value to an item;

 

                            (C)  The efforts are routine and require minimal supervision;

 

                            (D)  The contractor provides poor quality, untimely proposals;

 

                            (E)  The contractor fails to provide an adequate analysis of subcontractor costs;

 

                            (F)  The contractor does not cooperate in the evaluation and negotiation of the proposal;

 

                            (G)  The contractor's cost estimating system is marginal;

 

                            (H)  The contractor has made minimal effort to initiate cost reduction programs;

 

                            (I)  The contractor's cost proposal is inadequate;

 

                            (J)  The contractor has a record of cost overruns or another indication of unreliable cost estimates and lack of cost control; or

 

                            (K)  The contractor has a poor record of past performance.

 

                    (ii)  The following may justify a value significantly below normal—

 

                            (A)  Reviews performed by the field contract administration offices disclose unsatisfactory management and internal control systems (e.g., quality assurance, property control, safety, security); or

 

                            (B)  The effort requires an unusually low degree of management involvement.

 

215.404-71-3  Contract type risk and working capital adjustment.

 

      (a)  Description.  The contract type risk factor focuses on the degree of cost risk accepted by the contractor under varying contract types.  The working capital adjustment is an adjustment added to the profit objective for contract type risk.  It only applies to fixed-price contracts that provide for progress payments.  Though it uses a formula approach, it is not intended to be an exact calculation of the cost of working capital.  Its purpose is to give general recognition to the contractor's cost of working capital under varying contract circumstances, financing policies, and the economic environment.

 

      (b)  Determination.  The following extract from the DD 1547 is annotated to explain the process.

 

 

Contractor

 

Assigned

Base

Profit

Item

Risk Factors

 

Value

(Item 20)

Objective

24.

Contract Type Risk

 

(1)

(2)

(3)

 

 

 

Cost

Length

Interest

 

 

 

Financed

Factor

Rate

 

25.

Working Capital (4)

(5)

(6)

(7)

(8)

 

              (1)  Select a value from the list of contract types in paragraph (c) of this subsection using the evaluation criteria in paragraph (d) of this subsection.

 

              (2)  Insert the amount from Block 20, i.e., the total allowable costs excluding facilities capital cost of money.

 

              (3)  Multiply (1) by (2).

 

              (4)  Only complete this block when the prospective contract is a fixed-price contract containing provisions for progress payments.

 

              (5)  Insert the amount computed per paragraph (e) of this subsection.

 

              (6)  Insert the appropriate figure from paragraph (f) of this subsection.

 

              (7)  Use the interest rate established by the Secretary of the Treasury (see 230.7101-1(a)).  Do not use any other interest rate.

 

              (8)  Multiply (5) by (6) by (7).  This is the working capital adjustment.  It shall not exceed 4 percent of the contract costs in Block 20.

 

      (c)  Values:  Normal and designated ranges.

 

 

 

Normal

Designated

Contract Type

Notes

Value

(percent)

Range

(percent)

Firm-fixed-price, no financing

(1)

5

4 to 6.

Firm-fixed-price, with performance-based payments

(6)

4

2.5 to 5.5.

Firm-fixed-price, with progress payments

(2)

3

2 to 4.

 

 

 

 

Fixed-price incentive, no financing

(1)

3

2 to 4.

Fixed-price incentive, with performance-based payments

(6)

2

0.5 to 3.5.

Fixed-price with redetermination provision

(3)

 

 

Fixed-price incentive, with progress payments

(2)

1

0 to 2.

 

 

 

 

Cost-plus-incentive-fee

(4)

1

0 to 2.

Cost-plus-fixed-fee

(4)

 

.5

 

0 to 1.

Time-and-materials (including overhaul contracts priced on time-and-materials basis)

(5)

 

.5

 

0 to 1.

 

 

 

 

 

 

Labor-hour

 

(5)

 

.5

 

0 to 1.

Firm-fixed-price, level-of-effort

(5)

 

.5

 

0 to 1.

             

              (1)  “No financing” means either that the contract does not provide progress payments or performance-based payments, or that the contract provides them only on a limited basis, such as financing of first articles.  Do not compute a working capital adjustment.

 

              (2)  When the contract contains provisions for progress payments, compute a working capital adjustment (Block 25).

 

              (3)  For the purposes of assigning profit values, treat a fixed-price contract with redetermination provisions as if it were a fixed-price incentive contract with below normal conditions.

 

              (4)  Cost-plus contracts shall not receive the working capital adjustment.

 

              (5)  These types of contracts are considered cost-plus-fixed-fee contracts for the purposes of assigning profit values.  They shall not receive the working capital adjustment in Block 25.  However, they may receive higher than normal values within the designated range to the extent that portions of cost are fixed.

 

              (6)  When the contract contains provisions for performance-based payments, do not compute a working capital adjustment.

 

      (d)  Evaluation criteria.

 

              (1)  General.  The contracting officer should consider elements that affect contract type risk such as—

 

                    (i)  Length of contract;

 

                    (ii)  Adequacy of cost data for projections;

 

                    (iii)  Economic environment;

 

                    (iv)  Nature and extent of subcontracted activity;

 

                    (v)  Protection provided to the contractor under contract provisions (e.g., economic price adjustment clauses);

 

                    (vi)  The ceilings and share lines contained in incentive provisions;

     

                    (vii)  Risks associated with contracts for foreign military sales (FMS) that are not funded by U.S. appropriations; and

 

                    (viii)  When the contract contains provisions for performance-based payments—

 

                            (A)  The frequency of payments;

 

                            (B)  The total amount of payments compared to the maximum allowable amount specified at FAR 32.1004(b)(2); and

 

                            (C)  The risk of the payment schedule to the contractor.

 

              (2)  Mandatory.  The contracting officer shall assess the extent to which costs have been incurred prior to definitization of the contract action (also see 217.7404-6(a)).  The  assessment shall include any reduced contractor risk on both the contract before definitization and the remaining portion of the contract.  When costs have been incurred prior to definitization, generally regard the contract type risk to be in the low end of the designated range.  If a substantial portion of the costs have been incurred prior to definitization, the contracting officer may assign a value as low as 0 percent, regardless of contract type.

 

              (3)  Above normal conditions.  The contracting officer may assign a higher than normal value when there is substantial contract type risk.  Indicators of this are—

 

                    (i)  Efforts where there is minimal cost history;

 

                    (ii)  Long-term contracts without provisions protecting the contractor, particularly when there is considerable economic uncertainty;

 

                    (iii)  Incentive provisions (e.g., cost and performance incentives) that place a high degree of risk on the contractor;

 

                    (iv)  FMS sales (other than those under DoD cooperative logistics support arrangements or those made from U.S. Government inventories or stocks) where the contractor can demonstrate that there are substantial risks above those normally present in DoD contracts for similar items; or

 

                    (v)  An aggressive performance-based payment schedule that increases risk.

 

              (4)  Below normal conditions.  The contracting officer may assign a lower than normal value when the contract type risk is low.  Indicators of this are—

 

                    (i)  Very mature product line with extensive cost history;

 

                    (ii)  Relatively short-term contracts;

 

                    (iii)  Contractual provisions that substantially reduce the contractor's risk;

 

                    (iv)  Incentive provisions that place a low degree of risk on the contractor;

 

                    (v)  Performance-based payments totaling the maximum allowable amount(s) specified at FAR 32.1004(b)(2); or

 

                    (vi)  A performance-based payment schedule that is routine with minimal risk.

 

      (e)  Costs financed.

 

              (1)  Costs financed equal total costs multiplied by the portion (percent) of costs financed by the contractor.

 

              (2)  Total costs equal Block 20 (i.e., all allowable costs excluding facilities capital cost of money), reduced as appropriate when—

 

                    (i)  The contractor has little cash investment (e.g., subcontractor progress payments liquidated late in period of performance);

 

                    (ii)  Some costs are covered by special financing provisions, such as advance payments; or

 

                    (iii)  The contract is multiyear and there are special funding arrangements.

 

              (3)  The portion that the contractor finances is generally the portion not covered by progress payments, i.e., 100 percent minus the customary progress payment rate (see FAR 32.501).  For example, if a contractor receives progress payments at 80 percent, the portion that the contractor finances is 20 percent.  On contracts that provide progress payments to small businesses, use the customary progress payment rate for large businesses.

 

      (f)  Contract length factor.

 

              (1)  This is the period of time that the contractor has a working capital investment in the contract.  It—

 

                    (i)  Is based on the time necessary for the contractor to complete the substantive portion of the work;

 

                    (ii)  Is not necessarily the period of time between contract award and final delivery (or final payment), as periods of minimal effort should be excluded;

 

                    (iii)  Should not include periods of performance contained in option provisions; and

 

                    (iv)  Should not, for multiyear contracts, include periods of performance beyond that required to complete the initial program year's requirements.

 

              (2)  The contracting officer—

 

                    (i)  Should use the following table to select the contract length factor;

 

                    (ii)  Should develop a weighted average contract length when the contract has multiple deliveries; and

 

                    (iii)  May use sampling techniques provided they produce a representative result.

 

TABLE

Period to Perform Substantive

Contract Length

Portion (in months)

Factor

 

21 or less

 

 

.40

 

 

22 to 27

 

 

.65

 

 

28 to 33

 

 

.90

 

 

34 to 39

 

 

1.15

 

 

40 to 45

 

 

1.40

 

 

46 to 51

 

 

1.65

 

 

52 to 57

 

 

1.90

 

 

58 to 63

 

 

2.15

 

 

64 to 69

 

 

2.40

 

 

70 to 75

 

 

2.65

 

 

76 or more

 

2.90

 

 

              (3)  Example:  A prospective contract has a performance period of 40 months with end items being delivered in the 34th, 36th, 38th, and 40th months of the contract.  The average period is 37 months and the contract length factor is 1.15.

 

215.404-71-4  Facilities capital employed.

 

      (a)  Description.  This factor focuses on encouraging and rewarding capital investment in facilities that benefit DoD.  It recognizes both the facilities capital that the contractor will employ in contract performance and the contractor's commitment to improving productivity.

 

      (b)  Determination.  The following extract from the DD Form 1547 has been annotated to explain the process.

 

 

Item

Contractor Facilities Capital Employed

Assigned Value

Amount Employed

Profit Objective

26.

Land

N/A

(2)

N/A

27.

Buildings

N/A

(2)

N/A

28.

Equipment

(1)

(2)

(3)

 

              (1)  Select a value from the list in paragraph (c) of this subsection using the evaluation criteria in paragraph (d) of this subsection.

 

              (2)  Use the allocated facilities capital attributable to land, buildings, and equipment, as derived in DD Form 1861, Contract Facilities Capital Cost of Money (see 230.7001).

 

                    (i)  In addition to the net book value of facilities capital employed, consider facilities capital that is part of a formal investment plan if the contractor submits reasonable evidence that—

 

                            (A)  Achievable benefits to DoD will result from the investment; and

 

                            (B)  The benefits of the investment are included in the forward pricing structure.

 

                    (ii)  If the value of intracompany transfers has been included in Block 20 at cost (i.e., excluding general and administrative (G&A) expenses and profit), add to the contractor's allocated facilities capital, the allocated facilities capital attributable to the buildings and equipment of those corporate divisions supplying the intracompany transfers.  Do not make this addition if the value of intracompany transfers has been included in Block 20 at price (i.e., including G&A expenses and profit).

 

              (3)  Multiply (1) by (2).

 

      (c)  Values:  Normal and designated ranges.  These are the normal values and ranges.  They apply to all situations.

 

Asset Type

Normal Value

Designated Range

Land

0%

N/A

Buildings

0%

N/A

Equipment

17.5%

10% to 25%

 

      (d)  Evaluation criteria.

 

              (1)  In evaluating facilities capital employed, the contracting officer—

 

                    (i)  Should relate the usefulness of the facilities capital to the goods or services being acquired under the prospective contract;

 

                    (ii)  Should analyze the productivity improvements and other anticipated industrial base enhancing benefits resulting from the facilities capital investment, including—

 

                            (A)  The economic value of the facilities capital, such as physical age, undepreciated value, idleness, and expected contribution to future defense needs; and

 

                            (B)  The contractor's level of investment in defense related facilities as compared with the portion of the contractor's total business that is derived from DoD; and

 

                    (iii)  Should consider any contractual provisions that reduce the contractor's risk of investment recovery, such as termination protection clauses and capital investment indemnification.

 

              (2)  Above normal conditions.

 

                    (i)  The contracting officer may assign a higher than normal value if the facilities capital investment has direct, identifiable, and exceptional benefits.  Indicators are—

 

                            (A)  New investments in state-of-the-art technology that reduce acquisition cost or yield other tangible benefits such as improved product quality or accelerated deliveries; or

 

                            (B)  Investments in new equipment for research and development applications.

 

                    (ii)  The contracting officer may assign a value significantly above normal when there are direct and measurable benefits in efficiency and significantly reduced acquisition costs on the effort being priced.  Maximum values apply only to those cases where the benefits of the facilities capital investment are substantially above normal.

 

              (3)  Below normal conditions.

 

                    (i)  The contracting officer may assign a lower than normal value if the facilities capital investment has little benefit to DoD.  Indicators are—

 

                            (A)  Allocations of capital apply predominantly to commercial item lines;

 

                            (B)  Investments are for such things as furniture and fixtures, home or group level administrative offices, corporate aircraft and hangars, gymnasiums; or

 

                            (C)  Facilities are old or extensively idle.

 

                    (ii)  The contracting officer may assign a value significantly below normal when a significant portion of defense manufacturing is done in an environment characterized by outdated, inefficient, and labor-intensive capital equipment.

 

215.404-71-5  Cost efficiency factor.

 

     (a)  This special factor provides an incentive for contractors to reduce costs.  To the extent that the contractor can demonstrate cost reduction efforts that benefit the pending contract, the contracting officer may increase the prenegotiation profit objective by an amount not to exceed 4 percent of total objective cost (Block 20 of the DD Form 1547) to recognize these efforts (Block 29).

 

      (b)  To determine if using this factor is appropriate, the contracting officer shall consider criteria, such as the following, to evaluate the benefit the contractor’s cost reduction efforts will have on the pending contract:

 

              (1)  The contractor’s participation in Single Process Initiative improvements;

 

              (2)  Actual cost reductions achieved on prior contracts;

 

              (3)  Reduction or elimination of excess or idle facilities;

 

              (4)  The contractor’s cost reduction initiatives (e.g., competition advocacy programs, technical insertion programs, obsolete parts control programs, spare parts pricing reform, value engineering, outsourcing of functions such as information technology).  Metrics developed by the contractor such as fully loaded labor hours (i.e., cost per labor hour, including all direct and indirect costs) or other productivity measures may provide the basis for assessing the effectiveness of the contractor’s cost reduction initiatives over time;

 

              (5)  The contractor’s adoption of process improvements to reduce costs;

 

              (6)  Subcontractor cost reduction efforts;

 

              (7)  The contractor’s effective incorporation of commercial items and processes; or

 

              (8)  The contractor’s investment in new facilities when such investments contribute to better asset utilization or improved productivity.

 

      (c)  When selecting the percentage to use for this special factor, the contracting officer has maximum flexibility in determining the best way to evaluate the benefit the contractor’s cost reduction efforts will have on the pending contract.  However, the contracting officer shall consider the impact that quantity differences, learning, changes in scope, and economic factors such as inflation and deflation will have on cost reduction.

 

215.404-72  Modified weighted guidelines method for nonprofit organizations other than FFRDCs.

 

      (a)  Definition.  As used in this subpart, a nonprofit organization is a business entity—

 

              (1)  That operates exclusively for charitable, scientific, or educational purposes;

 

              (2)  Whose earnings do not benefit any private shareholder or individual;

 

              (3)  Whose activities do not involve influencing legislation or political campaigning for any candidate for public office; and

 

              (4)  That is exempted from Federal income taxation under section 501 of the Internal Revenue Code.

 

      (b)  For nonprofit organizations that are entities that have been identified by the Secretary of Defense or a Secretary of a Department as receiving sustaining support on a cost-plus-fixed-fee basis from a particular DoD department or agency, compute a fee objective for covered actions using the weighted guidelines method in 215.404-71, with the following modifications:

 

              (1)  Modifications to performance risk (Blocks 21-23 of the DD Form 1547).

 

                    (i)  If the contracting officer assigns a value from the standard designated range (see 215.404-71-2(c)), reduce the fee objective by an amount equal to 1 percent of the costs in Block 20 of the DD Form 1547.  Show the net (reduced) amount on the DD Form 1547.

 

                    (ii)  Do not assign a value from the technology incentive designated range.

 

              (2)  Modifications to contract type risk (Block 24 of the DD Form 1547).  Use a designated range of –1 percent to 0 percent instead of the values in 215.404-71-3.  There is no normal value.

 

      (c)  For all other nonprofit organizations except FFRDCs, compute a fee objective for covered actions using the weighted guidelines method in 215.404-71, modified as described in paragraph (b)(1) of this subsection.

 

215.404-73  Alternate structured approaches.

 

      (a)  The contracting officer may use an alternate structured approach under 215.404-4(c).

 

      (b)  The contracting officer may design the structure of the alternate, but it shall include—

 

              (1)  Consideration of the three basic components of profit--performance risk, contract type risk (including working capital), and facilities capital employed.  However, the contracting officer is not required to complete Blocks 21 through 30 of the DD Form 1547.

 

              (2)  Offset for facilities capital cost of money.

 

                    (i)  The contracting officer shall reduce the overall prenegotiation profit objective by the amount of facilities capital cost of money.  The profit amount in the negotiation summary of the DD Form 1547 must be net of the offset.

 

                    (ii)  This adjustment is needed for the following reason:  The values of the profit factors used in the weighted guidelines method were adjusted to recognize the shift in facilities capital cost of money from an element of profit to an element of contract cost (see FAR 31.205-10) and reductions were made directly to the profit factors for performance risk.  In order to ensure that this policy is applied to all DoD contracts that allow facilities capital cost of money, similar adjustments shall be made to contracts that use alternate structured approaches.

 

215.404-74  Fee requirements for cost-plus-award-fee contracts.

In developing a fee objective for cost-plus-award-fee contracts, the contracting officer shall—

 

      (a)  Follow the guidance in FAR 16.405-2 and 216.405-2;

 

      (b)  Not use the weighted guidelines method or alternate structured approach;

 

      (c)  Apply the offset policy in 215.404-73(b)(2) for facilities capital cost of money, i.e., reduce the base fee by the amount of facilities capital cost of money; and

 

      (d)  Not complete a DD Form 1547.

 

215.404-75  Fee requirements for FFRDCs.

For nonprofit organizations that are FFRDCs, the contracting officer—

 

      (a)  Should consider whether any fee is appropriate.  Considerations shall include the FFRDC’s—

 

              (1)  Proportion of retained earnings (as established under generally accepted accounting methods) that relates to DoD contracted effort;

 

              (2)  Facilities capital acquisition plans;

 

              (3)  Working capital funding as assessed on operating cycle cash needs; and

 

              (4)  Provision for funding unreimbursed costs deemed ordinary and necessary to the FFRDC.

 

      (b)  Shall, when a fee is considered appropriate, establish the fee objective in accordance with FFRDC fee policies in the DoD FFRDC Management Plan.

 

      (c)  Shall not use the weighted guidelines method or an alternate structured approach.

 

215.404-76  Reporting profit and fee statistics.

 

      (a)  Contracting officers in contracting offices that participate in the management information system for profit and fee statistics must send completed DD Forms 1547 on actions that exceed the cost or pricing data threshold, where the contracting officer used the weighted guidelines method, an alternate structured approach, or the modified weighted guidelines method, to their designated office within 30 days after contract award.

 

      (b)  Participating contracting offices and their designated offices are—


 

Contracting Office

Designated Office

ARMY

All

Headquarters, Department of the

Army

ATTN:  SAAL-PA

Skyline 6, Suite 302

5109 Leesburg Pike

Falls Church, VA  22041-3201

NAVY

All

Commander

Fleet and Industrial Supply Center, Norfolk

Washington Detachment, Code 402

Washington Navy Yard

Washington, DC  20374-5000

AIR FORCE

Air Force Materiel Command

      (all field offices)

Air Force Materiel Command

645 CCSG/SCOS

ATTN:  J010 Clerk

2721 Sacramento Street

Wright-Patterson Air Force

Base, OH  45433-5006

 

      (c)  When the contracting officer delegates negotiation of a contract action that exceeds the cost or pricing data threshold to another agency (e.g., to an ACO), that agency must ensure that a copy of the DD Form 1547 is provided to the delegating office for reporting purposes within 30 days after negotiation of the contract action.

 

      (d)  Contracting offices outside the United States and its outlying areas are exempt from reporting.

 

      (e)  Designated offices send a quarterly (non-cumulative) report of DD Form 1547 data to—

 

Washington Headquarters Services

Directorate for Information Operations and Reports (WHS/DIOR)

1215 Jefferson Davis Highway

Suite 1204

Arlington, VA  22202-4302

 

      (f)  In preparing and sending the quarterly report, designated offices—

 

              (1)  Perform the necessary audits to ensure information accuracy;

 

              (2)  Do not enter classified information;

 

              (3)  Transmit the report via computer magnetic tape using the procedures, format, and editing process issued by the Director of Defense Procurement; and

 

              (4)  Send the reports not later than the 30th day after the close of the quarterly reporting periods.

 

      (g)  These reporting requirements have been assigned Report Control Symbol DD-AT&L(Q)1751.

 

215.406-1  Prenegotiation objectives.

 

      (a)  Also consider¾

 

              (i)  Data resulting from application of work measurement systems in developing prenegotiation objectives; and

 

              (ii)  Field pricing assistance personnel participation in planned prenegotiation and negotiation activities.

 

      (b)  Prenegotiation objectives, including objectives related to disposition of findings and recommendations contained in preaward and postaward contract audit and other advisory reports, shall be documented and reviewed in accordance with Departmental procedures.

 

215.406-3  Documenting the negotiation.

 

      (a)(7)  Include the principal factors related to the disposition of findings and recommendations contained in preaward and postaward contract audit and other advisory reports.

 

              (10)  The documentation—

 

                    (A)  Must address significant deviations from the prenegotiation profit objective;

 

                    (B)  Should include the DD Form 1547, Record of Weighted Guidelines Application (see 215.404-70), if used, with supporting rationale; and

 

                    (C)  Must address the rationale for not using the weighted guidelines method when its use would otherwise be required by 215.404-70.

 

215.407-2  Make-or-buy programs.

 

      (e)  Program requirements.

 

              (1)  Items and work included.  The minimum dollar amount is $1 million.

 

215.407-3  Forward pricing rate agreements.

 

      (b)(i)  Use forward pricing rate agreement (FPRA) rates when such rates are available, unless waived on a case-by-case basis by the head of the contracting activity.

 

              (ii)  Advise the ACO of each case waived.

 

              (iii)  Contact the ACO for questions on FPRAs or recommended rates.

 

215.407-4  Should-cost review.

 

      (b)  Program should-cost review.

 

              (2)  DoD contracting activities should consider performing a program should-cost review before award of a definitive contract for a major system as defined by DoDI 5000.2.  See DoDI 5000.2 regarding industry participation.

 

      (c)  Overhead should-cost review.

 

              (1)  Contact the Defense Contract Management Agency (DCMA) (http://www.dcma.hq.dla.mil/) for questions on overhead should-cost analysis.

 

              (2)(A)  DCMA or the military department responsible for performing contract administration functions (e.g., Navy SUPSHIP) should consider, based on risk assessment, performing an overhead should-cost review of a contractor business unit (as defined in FAR 2.101) when all of the following conditions exist:

 

                            (1)  Projected annual sales to DoD exceed $1 billion;

 

                            (2)  Projected DoD versus total business exceeds 30 percent;

 

                            (3)  Level of sole-source DoD contracts is high;

 

                            (4)  Significant volume of proposal activity is anticipated;

 

                            (5)  Production or development of a major weapon system or program is anticipated; and

 

                            (6)  Contractor cost control/reduction initiatives appear inadequate.

 

                    (B)  The head of the contracting activity may request an overhead should-cost review for a business unit that does not meet the criteria in paragraph (c)(2)(A) of this subsection.

 

                    (C)  Overhead should-cost reviews are labor intensive.  These reviews generally involve participation by the contracting, contract administration, and contract audit elements.  The extent of availability of military department, contract administration, and contract audit resources to support DCMA-led teams should be considered when determining whether a review will be conducted.  Overhead should-cost reviews generally shall not be conducted at a contractor business segment more frequently than every 3 years.

 

215.407-5  Estimating systems.

 

215.407-5-70  Disclosure, maintenance, and review requirements.

 

      (a)  Definitions.

 

              (1)  “Acceptable estimating system” means an estimating system that—

 

                    (i)  Is established, maintained, reliable, and consistently applied; and

 

                    (ii)  Produces verifiable, supportable, and documented cost estimates.

 

              (2)  “Contractor” means a business unit as defined in FAR 2.101.

 

              (3)  “Estimating system” is as defined in the clause at 252.215-7002, Cost Estimating System Requirements.

 

              (4)  “Significant estimating system deficiency” means a shortcoming in the estimating system that is likely to consistently result in proposal estimates for total cost or a major cost element(s) that do not provide an acceptable basis for negotiation of fair and reasonable prices.

 

      (b)  Applicability.

 

              (1)  DoD policy is that all contractors have estimating systems that—

 

                    (i)  Are acceptable;

 

                    (ii)  Consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices;

 

                    (iii)  Are consistent with and integrated with the contractor's related management systems; and

 

                    (iv)  Are subject to applicable financial control systems.

 

              (2)  A large business contractor is subject to estimating system disclosure, maintenance, and review requirements if—

 

                    (i)  In its preceding fiscal year, the contractor received DoD prime contracts or subcontracts totaling $50 million or more for which cost or pricing data were required; or

 

                    (ii)  In its preceding fiscal year, the contractor received DoD prime contracts or subcontracts totaling $10 million or more (but less than $50 million) for which cost or pricing data were required and the contracting officer, with concurrence or at the request of the ACO, determines it to be in the best interest of the Government (e.g., significant estimating problems are believed to exist or the contractor's sales are predominantly Government).

 

      (c)  Responsibilities.

 

              (1)  The contracting officer shall—

 

                    (i)  Through use of the clause at 252.215-7002, Cost Estimating System Requirements, apply the disclosure, maintenance, and review requirements to large business contractors meeting the criteria in paragraph (b)(2)(i) of this subsection;

 

                    (ii)  Consider whether to apply the disclosure, maintenance, and review requirements to large business contractors under paragraph (b)(2)(ii) of this subsection; and

 

                    (iii)  Not apply the disclosure, maintenance, and review requirements to other than large business contractors.

 

              (2)  The cognizant ACO, for contractors subject to paragraph (b)(2) of this subsection, shall—

 

                    (i)  Determine the acceptability of the disclosure and system; and

 

                    (ii)  Pursue correction of any deficiencies.

 

              (3)  The cognizant auditor, on behalf of the ACO, serves as team leader in conducting estimating system reviews.

 

              (4)  A contractor subject to estimating system disclosure, maintenance, and review requirements shall—

 

                    (i)  Maintain an acceptable system;

 

                    (ii)  Describe its system to the ACO;

 

                    (iii)  Provide timely notice of changes in the system; and

 

                    (iv)  Correct system deficiencies identified by the ACO.

 

      (d)  Characteristics of an acceptable estimating system.

 

              (1)  General.  An acceptable system should provide for the use of appropriate source data, utilize sound estimating techniques and good judgment, maintain a consistent approach, and adhere to established policies and procedures.

 

              (2)  Evaluation.  In evaluating the acceptability of a contractor's estimating system, the ACO should consider whether the contractor's estimating system, for example—

 

                    (i)  Establishes clear responsibility for preparation, review, and approval of cost estimates;

 

                    (ii)  Provides a written description of the organization and duties of the personnel responsible for preparing, reviewing, and approving cost estimates;

 

                    (iii)  Assures that relevant personnel have sufficient training, experience, and guidance to perform estimating tasks in accordance with the contractor's established procedures;

 

                    (iv)  Identifies the sources of data and the estimating methods and rationale used in developing cost estimates;

 

                    (v)  Provides for appropriate supervision throughout the estimating process;

 

                    (vi)  Provides for consistent application of estimating techniques;

 

                    (vii)  Provides for detection and timely correction of errors;

 

                    (viii)  Protects against cost duplication and omissions;

 

                    (ix)  Provides for the use of historical experience, including historical vendor pricing information, where appropriate;

 

                    (x)  Requires use of appropriate analytical methods;

 

                    (xi)  Integrates information available from other management systems, where appropriate;

 

                    (xii)  Requires management review including verification that the company's estimating policies, procedures, and practices comply with this regulation;

 

                    (xiii)  Provides for internal review of and accountability for the acceptability of the estimating system, including the comparison of projected results to actual results and an analysis of any differences;

 

                    (xiv)  Provides procedures to update cost estimates in a timely manner throughout the negotiation process; and

 

                    (xv)  Addresses responsibility for review and analysis of the reasonableness of subcontract prices.

 

              (3)  Indicators of potentially significant estimating deficiencies.  The following examples indicate conditions that may produce or lead to significant estimating deficiencies—

 

                    (i)  Failure to ensure that historical experience is available to and utilized by cost estimators, where appropriate;

 

                    (ii)  Continuing failure to analyze material costs or failure to perform subcontractor cost reviews as required;

 

                    (iii)  Consistent absence of analytical support for significant proposed cost amounts;

 

                    (iv)  Excessive reliance on individual personal judgment where historical experience or commonly utilized standards are available;

 

                    (v)  Recurring significant defective pricing findings within the same cost element(s);

 

                    (vi)  Failure to integrate relevant parts of other management systems (e.g., production control or cost accounting) with the estimating system so that the ability to generate reliable cost estimates is impaired; and

 

                    (vii)  Failure to provide established policies, procedures, and practices to persons responsible for preparing and supporting estimates.

 

      (e)  Review procedures.  Cognizant audit and contract administration activities shall—

 

              (1)  Establish and manage regular programs for reviewing selected contractors' estimating systems.

 

              (2)  Conduct reviews as a team effort.

 

                    (i)  The contract auditor will be the team leader.

 

                    (ii)  The team leader will—

 

                            (A)  Coordinate with the ACO to ensure that team membership includes qualified contract administration technical specialists.

 

                            (B)  Advise the ACO and the contractor of significant findings during the conduct of the review and during the exit conference.

 

                            (C)  Prepare a team report.

 

                                    (1)  The ACO or a representative should—

 

                                           (i)  Coordinate the contract administration activity's review;

 

                                          (ii)  Consolidate findings and recommendations; and

 

                                          (iii)  When appropriate, prepare a comprehensive written report for submission to the auditor.

 

                                    (2)  The contract auditor will attach the ACO's report to the team report.

 

                                    (3)  Tailor reviews to take full advantage of the day-to-day work done by both organizations.

 

                                    (4)  Conduct a review, every 3 years, of contractors subject to the disclosure requirements.  The ACO and the auditor may lengthen or shorten the 3-year period based on their joint risk assessment of the contractor's past experience and current vulnerability.

 

      (f)  Disposition of survey team findings.

 

              (1)  Reporting of survey team findings.  The auditor will document the findings and recommendations of the survey team in a report to the ACO.  If there are significant estimating deficiencies, the auditor will recommend disapproval of all or portions of the estimating system.

 

              (2)  Initial notification to the contractor.  The ACO will provide a copy of the team report to the contractor and, unless there are no deficiencies mentioned in the report, will ask the contractor to submit a written response in 30 days, or a reasonable extension.

 

                    (i)  If the contractor agrees with the report, the contractor has 60 days from the date of initial notification to correct any identified deficiencies or submit a corrective action plan showing milestones and actions to eliminate the deficiencies.

 

                    (ii)  If the contractor disagrees, the contractor should provide rationale in its written response.

 

              (3)  Evaluation of contractor's response.  The ACO, in consultation with the auditor, will evaluate the contractor's response to determine whether—

 

                    (i)  The estimating system contains deficiencies that need correction;

 

                    (ii)  The deficiencies are significant estimating deficiencies that would result in disapproval of all or a portion of the contractor's estimating system; or

 

                    (iii)  The contractor's proposed corrective actions are adequate to eliminate the deficiency.

 

              (4)  Notification of ACO determination.  The ACO will notify the contractor and the auditor of the determination and, if appropriate, of the Government's intent to disapprove all or selected portions of the system.  The notice shall—

 

                    (i)  List the cost elements covered;

 

                    (ii)  Identify any deficiencies requiring correction; and

 

                    (iii)  Require the contractor to correct the deficiencies within 45 days or submit an action plan showing milestones and actions to eliminate the deficiencies.

 

              (5)  Notice of disapproval.  If the contractor has neither submitted an acceptable corrective action plan nor corrected significant deficiencies within 45 days, the ACO shall disapprove all or selected portions of the contractor's estimating system.  The notice of disapproval must—

 

                    (i)  Identify the cost elements covered;

 

                    (ii)  List the deficiencies that prompted the disapproval; and

 

                    (iii)  Be sent to the cognizant auditor, and each contracting and contract administration office having substantial business with the contractor.

 

              (6)  Monitoring contractor's corrective action.  The auditor and the ACO will monitor the contractor's progress in correcting  deficiencies.  If the contractor fails to make adequate progress, the ACO shall take whatever action is necessary to ensure that the contractor corrects the deficiencies.  Examples of actions the ACO can take are:  bringing the issue to the attention of higher level management, reducing or suspending progress payments (see FAR 32.503-6), and recommending nonaward of potential contracts.

 

              (7)  Withdrawal of estimating system disapproval.  The ACO will withdraw the disapproval when the ACO determines that the contractor has corrected the significant system deficiencies.  The ACO will notify the contractor, the auditor, and affected contracting and contract administration activities of the withdrawal.

 

      (g)  Impact of estimating system deficiencies on specific proposals.

 

              (1)  Field pricing teams will discuss identified estimating system deficiencies and their impact in all reports on contractor proposals until the deficiencies are resolved.

 

              (2)  The contracting officer responsible for negotiation of a proposal generated by an estimating system with an identified deficiency shall evaluate whether the deficiency impacts the negotiations.  If it does not, the contracting officer should proceed with negotiations.  If it does, the contracting officer should consider other alternatives, e.g.—

 

                    (i)  Allowing the contractor additional time to correct the estimating system deficiency and submit a corrected proposal;

 

                    (ii)  Considering another type of contract, e.g., FPIF instead of FFP;

 

                    (iii)  Using additional cost analysis techniques to determine the reasonableness of the cost elements affected by the system's deficiency;

 

                    (iv)  Segregating the questionable areas as a cost reimbursable line item;

 

                    (v)  Reducing the negotiation objective for profit or fee; or

 

                    (vi)  Including a contract (reopener) clause that provides for adjustment of the contract amount after award.

 

              (3)  The contracting officer who incorporates a reopener clause into the contract is responsible for negotiating price adjustments required by the clause.  Any reopener clause necessitated by an estimating deficiency should—

 

                    (i)  Clearly identify the amounts and items that are in question at the time of negotiation;

 

                    (ii)  Indicate a specific time or subsequent event by which the contractor will submit a supplemental proposal, including cost or pricing data, identifying the cost impact adjustment necessitated by the deficient estimating system;

 

                    (iii)  Provide for the contracting officer to unilaterally adjust the contract price if the contractor fails to submit the supplemental proposal; and

 

                    (iv)  Provide that failure of the Government and the contractor to agree to the price adjustment shall be a dispute under the Disputes clause.

 

215.408  Solicitation provisions and contract clauses.

 

      (1)  Use the clause at 252.215-7000, Pricing Adjustments, in solicitations and contracts that contain the clause at¾

 

              (i)  FAR 52.215-11, Price Reduction for Defective Cost or Pricing Data--Modifications;

 

              (ii)  FAR 52.215-12, Subcontractor Cost or Pricing Data; or

 

              (iii)  FAR 52.215-13, Subcontractor Cost or Pricing Data--Modifications.

 

      (2)  Use the clause at 252.215-7002, Cost Estimating System Requirements, in all solicitations and contracts to be awarded on the basis of cost or pricing data.

 

215.470  Estimated data prices.

 

      (a)  DoD requires estimates of the prices of data in order to evaluate the cost to the Government of data items in terms of their management, product, or engineering value.

 

      (b)  When data are required to be delivered under a contract, the solicitation will include DD Form 1423, Contract Data Requirements List.  The form and the provision included in the solicitation request the offeror to state what portion of the total price is estimated to be attributable to the production or development of the listed data for the Government (not to the sale of rights in the data).  However, offerors' estimated prices may not reflect all such costs; and different offerors may reflect these costs in a different manner, for the following reasons—

 

              (1)  Differences in business practices in competitive situations;

 

              (2)  Differences in accounting systems among offerors;

 

              (3)  Use of factors or rates on some portions of the data;

 

              (4)  Application of common effort to two or more data items; and

 

              (5)  Differences in data preparation methods among offerors.

 

      (c)  Data price estimates should not be used for contract pricing purposes without further analysis.

 

      (d)  The contracting officer shall ensure that the contract does not include a requirement for data that the contractor has delivered or is obligated to deliver to the Government under another contract or subcontract, and that the successful offeror identifies any such data required by the solicitation.  However, where duplicate data are desired, the contract price shall include the costs of duplication, but not of preparation, of such data.

 

 

 


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