SUBPART
215.4--CONTRACT PRICING
(Revised July 29, 2024)
215.401 Definitions.
215.402 Pricing policy.
215.403 Obtaining certified cost or pricing data.
215.403-1 Prohibition on obtaining certified cost or pricing data (10 U.S.C. chapter 271
and 41 U.S.C. chapter 35).
215.403-3 Requiring data other than certified cost or pricing data.
215.403-5 Instructions for submission of certified cost or pricing data and data other than
certified cost or pricing data.
215.404 Proposal analysis.
215.404-1 Proposal analysis techniques.
215.404-2 Data 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.
215.406 Documentation.
215.406-1 Prenegotiation objectives.
215.406-2 Certificate of current cost or pricing data.
215.406-3 Documenting the negotiation.
215.407 Special cost or pricing areas.
215.407-1 Defective certified cost or pricing data.
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.
215.401 Definitions.
As used in this subpart—
“Market prices” means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors.
“Relevant sales data” means information on sales of the same or similar items that can be used to establish price reasonableness taking into consideration the age, volume, and nature of the transactions (including any related discounts, refunds, rebates, offsets or other adjustments).
(a)(i) Pursuant to section 831 of the National Defense Authorization Act for Fiscal Year 2013 (Pub. L. 112-239)—
(A) The contracting officer is responsible for determining if the information provided by the offeror is sufficient to determine price reasonableness. This responsibility includes determining whether information on the prices at which the same or similar items have previously been sold is adequate for evaluating the reasonableness of price, and determining the extent of uncertified cost data that should be required in cases in which price information is not adequate;
(B) The contracting officer shall not limit the Government’s ability to obtain information that may be necessary to support a determination of fair and reasonable pricing by agreeing to contract terms that preclude obtaining necessary supporting information; and
(C) When obtaining uncertified cost data, the contracting officer shall require the offeror to provide the information in the form in which it is regularly maintained in the offeror’s business operations.
(ii) Follow the procedures at PGI 215.402
(DFARS/PGI view) when conducting cost or price analysis, particularly with regard to acquisitions for sole source commercial products or commercial services.
215.403 Obtaining certified cost or pricing data.
215.403-1 Prohibition on obtaining certified cost or pricing data
(10 U.S.C. chapter 271 and 41 U.S.C. chapter 35).
(b) Exceptions to certified cost or pricing data requirements.
(i) Follow the procedures at PGI 215.403-1(b) (DFARS/PGI view).
(ii) Submission of certified cost or pricing data shall not be required in the case of a contract, subcontract, or modification of a contract or subcontract to the extent such data relates to an indirect offset.
(c) Standards for exceptions from certified cost or pricing data requirements..
(1) Adequate price competition.
(A) For acquisitions under dual or multiple source programs—
(1)
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 data to assist in price analysis;
and
(2)
Adequate price competition normally exists when—
(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)).
(B) If only one offer is received in response to a competitive solicitation, see 215.371-3.
(3) Commercial products or commercial services.
(A) Follow the procedures
at PGI 215.403-1(c)(3)(A) (DFARS/PGI view) for pricing commercial products or commercial services, except see 234.7002(e) for pricing commercial subsystems of major weapon systems and components and spare parts of major weapon systems and of subsystems of major weapon systems.
(B) When applying the commercial product or commercial service exception under FAR 15.403-1(b)(3), see 212.102(a)(ii) regarding prior commercial product or commercial service determinations.
(4) Waivers.
(A) The head of the contracting activity may,
without power of delegation, apply the exceptional circumstances authority when
a determination is made that—
(1)
The property or services cannot reasonably be obtained under the
contract, subcontract, or modification, without the granting of the waiver;
(2)
The price can be determined to be fair and reasonable without the
submission of certified cost or pricing data; and
(3)
There are demonstrated benefits to granting the waiver. Follow the
procedures at PGI 215.403-1(c)(4)(A) (DFARS/PGI view) for determining when an exceptional case
waiver is appropriate, for approval of such waivers, for partial waivers, and
for waivers applicable to unpriced supplies or services.
(B) By November 30th of each year, departments and agencies shall provide a report to the Office of the Principal Director, Defense Pricing, Contracting, and Acquisition Policy, (Price, Cost and Finance), of all waivers granted under FAR 15.403-1(b)(4), during the previous fiscal year, for any contract, subcontract, or modification expected to have a value of $20 million or more. See PGI
215.403-1(c)(4)(B) (DFARS/PGI view) for the format and guidance for the report.
(C) DoD has waived the requirement for submission of certified cost or pricing data for the Canadian Commercial Corporation and its subcontractors (but see 215.408(3) and 225.870-4(c)).
(D) DoD has waived certified cost or pricing data requirements for nonprofit
organizations (including educational institutions) on cost-reimbursement-no-fee contracts. The contracting officer shall require—
(1)
Submission of data other than certified cost or pricing data to the
extent necessary to determine price reasonableness and cost realism; and
(2) Certified cost or pricing data from subcontractors that are not nonprofit organizations when the subcontractor’s proposal exceeds the certified cost
or pricing data threshold at FAR 15.403-4(a)(1).
215.403-3 Requiring data other than certified cost or pricing data.
Follow the procedures at PGI
215.403-3 (DFARS/PGI view).
(a) In accordance with 10 U.S.C. 3705—
(1) Contracting officers shall not determine the price of a contract or subcontract to be fair and reasonable based solely on historical prices paid by the Government (see PGI 215.403-3(4) (DFARS/PGI view)); and
(4)
In lieu of the factors for consideration listed in FAR 15.403-3(a)(4), a determination by the head of the contracting activity (see PGI 215.403-3(7) (DFARS/PGI view)) that it is in the best interest of the Government to make the award to an offeror that does not make a good faith effort to comply with a reasonable request to submit data other than certified cost or pricing data shall be based on consideration of pertinent factors, including the following:
(i)
The effort to obtain the data.
(ii)
Availability of other sources of supply of the item or service.
(iii)
The urgency or criticality of the Government’s need for the item or service.
(iv)
Reasonableness of the price of the contract, subcontract, or modification of the contract or subcontract based on information available to the contracting officer.
(v)
Rationale or justification made by the offeror for not providing the requested data.
(vi)
Risk to the Government if award is not made.
(c) Commercial products or commercial services. For determinations of price reasonableness of major weapon systems acquired as commercial products, see 234.7002(e).
215.403-5 Instructions for submission of certified cost or pricing data and data other than certified cost or pricing data.
(b)(3) For contractors following the contract cost principles in FAR subpart 31.2, Contracts With Commercial Organizations, pursuant to the procedures in FAR 42.1701(b), the administrative contracting officer shall require contractors to comply with the submission items in Table 215.403-1 in order to ensure that their forward pricing rate proposal is submitted in an acceptable form in accordance with FAR 15.403-5(b)(3). The contracting officer should request that the proposal be submitted to the Government at least 90 days prior to the proposed effective date of the rates. To ensure the proposal is complete, the contracting officer shall request that the contractor complete the Contractor Forward Pricing Rate Proposal Adequacy Checklist at Table 215.403-1, and submit it with the forward pricing rate proposal.
Table 215.403-1 – Contractor Forward Pricing Rate Proposal Adequacy Checklist
Complete the following checklist, providing the location of requested information, or an explanation of why the requested information is not provided, and submit it with the forward pricing rate proposal.
Contractor Forward Pricing Rate Proposal Adequacy Checklist
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215.404-1
Proposal analysis techniques.
(a) General.
(i) Follow the procedures at PGI 215.404-1 (DFARS/PGI view) for proposal
analysis.
(ii) For spare parts or support equipment, perform
an analysis of—
(A) 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 data;
(B) Those line items where a comparison of the
item description and the proposed price indicates a potential for overpricing;
(C) Significant high-dollar-value items. If there are no obvious high-dollar-value items,
include an analysis of a random sample of items; and
(D) 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.
(b) Price analysis.
(i) In the absence of adequate price competition in response to the solicitation, pricing based on market prices is the preferred method to establish a fair and reasonable price (see PGI 215.404-1(b)(i) (DFARS/PGI view)).
(ii) If the contracting officer determines that the information obtained through market research is insufficient to determine the reasonableness of price, the contracting officer shall consider information submitted by the offeror of recent purchase prices paid by the Government and commercial customers for the same or similar commercial
products or commercial services under comparable terms and conditions in establishing price reasonableness on a subsequent purchase if the contracting officer is satisfied that the prices previously paid remain a valid reference for comparison. Price reasonableness shall not be based solely on historical prices paid by the Government (see 215.403-3(a)(1)). The contracting officer shall consider the totality of other relevant factors such as the time elapsed since the prior purchase and any differences in the quantities purchased (10 U.S.C. 3703(e)).
(iii) If the contracting officer determines that the offeror cannot provide sufficient information as described in paragraph (b)(ii) of this section to determine the reasonableness of price, the contracting officer should request the offeror to submit information on—
(A) Prices paid for the same or similar items sold under different terms and conditions;
(B) Prices paid for similar levels of work or effort on related products or services;
(C) Prices paid for alternative solutions or approaches; and
(D) Other relevant information that can serve as the basis for determining the reasonableness of price.
(iv) If the contracting officer determines that the pricing information submitted is not sufficient to determine the reasonableness of price, the contracting officer shall request other relevant information, to include cost data. However, no cost data may be required in any case in which there are sufficient non-Government sales of the same item to establish reasonableness of price (section 831 of the National Defense Authorization Act for Fiscal Year 2013 (Pub. L. 112-239)).
(v) When evaluating pricing data, the contracting officer shall consider materially differing terms and conditions, quantities, and market and economic factors (see PGI 215.404-1(b)(v) (DFARS/PGI view)). For similar items, the contracting officer shall also consider material differences between the similar item and the item being procured (see FAR 15.404-1(b)(2)(ii)(B)). Material differences are those that could reasonably be expected to influence the contracting officer’s determination of price reasonableness. The contracting officer shall consider the following factors when evaluating the relevance of the information available:
(A) Market prices.
(B) Age of data.
(1)
Whether data is too old to be relevant depends on the industry (e.g., rapidly evolving technologies), product maturity (e.g., stable), economic factors (e.g., new sellers in the marketplace), and various other considerations.
(2)
A pending sale may be relevant if, in the judgement of the contracting officer, it is probable at the anticipated price, and the sale could reasonably be expected to materially influence the contracting officer’s determination of price reasonableness. The contracting officer may consult with the cognizant administrative contracting officers (ACOs) as they may have information about pending sales.
(C) Volume and completeness of transaction data. Data must include a sufficient number of transactions to represent the range of relevant sales to all types of customers. The data must also include key information, such as date, quantity sold, part number, part nomenclature, sales price, and customer. If the number of transactions is insufficient or the data is incomplete, the contracting officer shall request additional sales data to evaluate price reasonableness. If the contractor cannot provide sufficient sales data, the contracting officer shall request other relevant information.
(D) Nature of transactions. The nature of a sales transaction includes the information necessary to understand the transaction, such as terms and conditions, date, quantity sold, sale price, unique requirements, the type of customer (government, distributor, retail end-user, etc.), and related agreements. It also includes warranties, key product technical specifications, maintenance agreements, and preferred customer rewards.
(vi) The contracting officer shall consider catalog prices to be reliable when they are regularly maintained and supported by relevant sales data (including any related discounts, refunds, rebates, offsets, or other adjustments). The contracting officer may request that the offeror support differences between the proposed price(s), catalog price(s), and relevant sales data.
(vii) The contracting officer may consult with the DoD cadre of experts who are available to provide expert advice to the acquisition workforce in assisting with commercial product or commercial service determinations and price reasonableness determinations. The DoD cadre of experts is identified at PGI 215.404-1(b)(vii) (DFARS/PGI view).
(viii) When procuring a service or an end product identified by a material identifier that is available as described at PGI 204.7603 (DFARS/PGI view), the contracting officer shall consider the Supplier Performance Risk System price risk assessments in determining if a proposed price is consistent with historical prices paid for an item or otherwise creates a risk to the Government. See also 215.403-3(a)(1).
(h) Review and justification of pass-through contracts. Follow the procedures at PGI 215.404-1(h)(2) (DFARS/PGI view) when considering alternative approaches or making the determination that the contracting approach selected is in the best interest of the Government, as required by FAR 15.404-1(h)(2).
215.404-2 Data to support proposal analysis.
See PGI 215.404-2 (DFARS/PGI view) for guidance on obtaining field pricing or audit assistance.
215.404-3 Subcontract pricing considerations.
Follow the procedures at PGI 215.404-3 (DFARS/PGI view) when reviewing a subcontractor’s
proposal.
(b) Policy.
(1) Contracting officers shall use a structured approach for developing a
prenegotiation profit or fee objective on any negotiated contract action when certified
cost or pricing data is obtained, except for cost-plus-award-fee contracts (see 215.404-74, 216.405-2, and FAR 16.405-2) 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 is—
(i)
At or below the certified 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.
Follow the procedures at PGI 215.404-70 (DFARS/PGI view) for use of DD Form 1547
whenever a structured approach to profit analysis is required.
215.404-71
Weighted guidelines method.
(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.
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Assigned |
Assigned |
Base |
Profit |
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Item |
Contractor Risk Factors |
Weighting |
Value |
(Item 20) |
Objective |
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21. |
Technical |
(1) |
(2) |
N/A |
N/A |
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22. |
Management/ Cost Control |
(1) |
(2) |
N/A |
N/A |
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23. |
Performance Risk (Composite) |
N/A |
(3) |
(4) |
(5) |
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(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:
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Assigned
Weighting |
Assigned
Value |
Weighted
Value |
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Technical |
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60% |
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5.0% |
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3.0% |
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Management/ Cost Control |
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40% |
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4.0% |
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1.6% |
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Composite Value |
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100% |
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4.6% |
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(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:
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Normal
Value |
Designated
Range |
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Standard |
5% |
3% to 7% |
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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 data, 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.
(iii) If the contractor demonstrates efficient management and cost control through the submittal of a timely, qualifying proposal (as defined in 217.7401) in furtherance of definitization of an undefinitized contract action, and the proposal demonstrates effective cost control from the time of award to the present, the contracting officer may add 1 percentage point to the value determined for management/cost control up to the maximum of 7 percent.
(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 |
|
Objective |
|
24a |
Contract Type Risk (based on incurred costs at the time of qualifying proposal submission) |
|
(1) |
(2)(i) |
(3) |
|
24b |
Contract Type Risk (based on Government estimated cost to complete) |
|
(1) |
(2)(ii) |
(3) |
|
24c |
Totals |
|
|
(3) |
(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 section using the evaluation criteria in paragraph (d) of this section. See paragraph (d)(2) of this section.
(2)(i) Insert the amount of costs incurred as of the date the contractor submits a qualifying proposal, such as under an undefinitized contract action (excluding facilities capital cost of money) into the Block 24a column titled Base.
(ii) Insert the amount of Government estimated cost to complete (excluding facilities capital cost of money) into the Block 24b column titled Base.
(3) Multiply (1) by (2)(i) and (2)(ii), respectively for blocks 24a and 24b. Add Blocks 24a and 24b and insert the totals in Block 24c.
(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
https://www.fiscal.treasury.gov/fsservices/gov/pmt/promptPayment/rates.htm). 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:
|
|
|
|
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) |
|
0.5 |
|
0 to 1 |
|
|
(5) |
|
0.5 |
|
0 to 1 |
|
|
|
|
|
|
|
|
Labor-hour |
(5) |
|
0.5 |
|
0 to 1 |
|
Firm-fixed-price, level-of-effort |
(5) |
|
0.5 |
|
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
(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.
(i) 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) and 243.204-70-6).
When considering the reduced cost risks associated with allowable incurred costs on an undefinitized contract action, it is appropriate to apply separate contract risk factors for allowable incurred costs and estimated costs to complete when completing the contract risk sections of DD Form 1547, Record of Weighted Guidelines. 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 has been incurred prior to definitization, the contracting officer may assign a value as low as zero percent, regardless of contract type. However, if a contractor submits a qualifying proposal to definitize an undefinitized contract action and the contracting officer for such action definitizes the contract after the end of the 180-day period beginning on the date on which the contractor submitted the qualifying proposal as defined in 217.7401, the profit allowed on the contract shall accurately reflect the cost risk of the contractor as such risk existed on the date the contractor submitted the qualifying proposal.
(ii) Contracting officers shall document in the price negotiation memorandum the reason for assigning a specific contract type risk value, to include the extent to which any reduced cost risk during the undefinitized period of performance was considered, in determining the negotiation objective.
(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) Contract
facilities capital estimates. The
contracting officer shall estimate the facilities capital cost of money and
capital employed using—
(1) An analysis of the appropriate Forms CASB-CMF
and cost of money factors (48 CFR 9904.414 and FAR 31.205-10); and
(2) DD Form 1861, Contract Facilities Capital
Cost of Money.
(c) Use of
DD Form 1861. See
PGI 215.404-71-4(c) (DFARS/PGI view) for obtaining field pricing support for preparing DD Form 1861.
(1) Purpose. The DD Form 1861 provides a means of linking
the Form CASB-CMF and DD Form 1547, Record of Weighted Guidelines
Application. It—
(i) Enables the
contracting officer to differentiate profit objectives for various types of
assets (land, buildings, equipment). The
procedure is similar to applying overhead rates to appropriate overhead
allocation bases to determine contract overhead costs.
(ii) Is designed
to record and compute the contract facilities capital cost of money and capital
employed which is carried forward to DD Form 1547.
(2) Completion
instructions. Complete a DD Form
1861 only after evaluating the contractor's cost proposal, establishing cost of
money factors, and establishing a prenegotiation objective on cost. Complete the form as follows:
(i) List
overhead pools and direct-charging service centers (if used) in the same
structure as they appear on the contractor's cost proposal and Form
CASB-CMF. The structure and allocation
base units-of-measure must be compatible on all three displays.
(ii) Extract
appropriate contract overhead allocation base data, by year, from the evaluated
cost breakdown or prenegotiation cost objective and list against each overhead
pool and direct-charging service center.
(iii) Multiply
each allocation base by its corresponding cost of money factor to get the
facilities capital cost of money estimated to be incurred each year. The sum of these products represents the
estimated contract facilities capital cost of money for the year's effort.
(iv) Total
contract facilities cost of money is the sum of the yearly amounts.
(v) Since the
facilities capital cost of money factors reflect the applicable cost of money
rate in Column 1 of Form CASB-CMF, divide the contract cost of money by that
same rate to determine the contract facilities capital employed.
(d) Preaward
facilities capital applications. To
establish cost and price objectives, apply the facilities capital cost of money
and capital employed as follows:
(1) Cost of Money.
(i)
Cost Objective. Use the
imputed facilities capital cost of money, with normal, booked costs, to
establish a cost objective or the target cost when structuring an incentive
type contract. Do not adjust target
costs established at the outset even though actual cost of money rates become
available during the period of contract performance.
(ii)
Profit Objective. When
measuring the contractor's effort for the purpose of establishing a
prenegotiation profit objective, restrict the cost base to normal, booked
costs. Do not include cost of money as
part of the cost base.
(2) Facilities Capital Employed. Assess and weight the profit objective for
risk associated with facilities capital employed in accordance with the profit
guidelines at 215.404-71-4.
(e) 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 (f)
of this subsection using the evaluation criteria in paragraph (g) 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.
(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).
(f) Values:
|
Asset Type |
Normal Value |
Designated Range |
|
Land |
0% |
N/A |
|
Buildings |
0% |
N/A |
|
Equipment |
17.5% |
10% to 25% |
(g) 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 product 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 products or commercial services and commercial 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 under Cost Accounting Standard (CAS) 414, Cost of Money as an
Element of the Cost of Facilities Capital (48 CFR 9904.414). Cost of money under CAS 417, Cost of Money as
an Element of the Cost of Capital Assets Under Construction (48 CFR 9904.417),
should not be used to reduce the overall prenegotiation profit objective. 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 Instruction 5000.77, DoD Federally Funded Research and Development Center Program.
(c) Shall not use the weighted guidelines method
or an alternate structured approach.
215.406-1 Prenegotiation objectives.
Follow
the procedures at PGI 215.406-1 (DFARS/PGI view) for establishing prenegotiation objectives.
215.406-2 Certificate of current cost or pricing data.
See PGI 215.406-2 (DFARS/PGI view) for additional information and guidance on Certificates of Current Cost or Pricing Data.
215.406-3 Documenting the negotiation.
Follow
the procedures at PGI 215.406-3 (DFARS/PGI view) for documenting the negotiation.
215.407 Special cost or pricing areas.
215.407-1 Defective certified cost or pricing data.
(c)(i) When a contractor voluntarily discloses defective pricing after contract award, the contracting officer shall discuss the disclosure with the Defense Contract Audit Agency (DCAA). This discussion will assist in the contracting officer determining the involvement of DCAA, which could be a limited-scope audit (e.g., limited to the affected cost elements of the defective pricing disclosure), a full-scope audit, or technical assistance as appropriate for the circumstances (e.g., nature or dollar amount of the defective pricing disclosure). At a minimum, the contracting officer shall discuss with DCAA the following:
(A) Completeness of the contractor’s voluntary disclosure on the affected contract.
(B) Accuracy of the contractor’s cost impact calculation for the affected contract.
(C) Potential impact on existing contracts, task or deliver orders, or other proposals the contractor has submitted to the Government.
(ii) Voluntary disclosure of defective pricing is not a voluntary refund as defined in 242.7100 and does not waive the Government entitlement to the recovery of any overpayment plus interest on the overpayments in accordance with FAR 15.407-1(b)(7).
(iii) Voluntary disclosure of defective pricing does not waive the Government’s rights to pursue defective pricing claims on the affected contract or any other Government contract.
215.407-2 Make-or-buy programs.
(a) General. See PGI for guidance on factors to consider when deciding whether to request a make-or-buy plan and for factors to consider when evaluating make-or-buy plan submissions.
(e) Program
requirements.
(1) Items
and work included. The minimum
dollar amount is $1.5 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.
(a) General. See PGI 215.407-4 (DFARS/PGI view) for guidance on determining whether to perform a program or
overhead should-cost review.
(b) Program should-cost review. Major weapon system should-cost program reviews shall be conducted in a manner that is transparent, objective, and provides for the efficiency of the DoD systems acquisition process (section 837 of the National Defense Authorization Act for Fiscal Year 2018 (Pub. L. 115-91)).
(i) Major weapon system should-cost reviews may include the following features:
(A) A thorough review of each contributing element of the program cost and the justification for each cost.
(B) An analysis of non-value added overhead and unnecessary reporting requirements.
(C) Benchmarking against similar DoD programs, similar commercial programs (where appropriate), and other programs by the same contractor at the same facility.
(D) An analysis of supply chain management to encourage competition and incentive cost performance at lower tiers.
(E) A review of how to restructure the program (Government and contractor) team in a streamlined manner, if necessary.
(F) Identification of opportunities to break out Government-furnished equipment versus prime contractor-furnished materials.
(G) Identification of items or services contracted through third parties that result in unnecessary pass-through costs.
(H) Evaluation of ability to use integrated developmental and operational testing and modeling and simulation to reduce overall costs.
(I) Identification of alternative technology and materials to reduce developmental or lifecycle costs for a program.
(J) Identification and prioritization of cost savings opportunities.
(K) Establishment of measurable targets and ongoing tracking systems.
(ii) The should-cost review shall provide for sufficient analysis while minimizing the impact on program schedule by engaging stakeholders early, relying on information already available before requesting additional data, and establishing a team with the relevant expertise early.
(iii) The should-cost review team shall be comprised of members, including third-party experts if necessary, with the training, skills, and experience in analysis of cost elements, production or sustainment processes, and technologies relevant to the program under review. The review team may include members from the Defense Contract Management Agency, the department or agency’s cost analysis center, and appropriate functional organizations, as necessary.
(iv) The should-cost review team shall establish a process for communicating and collaborating with the contractor throughout the should-cost review, including notification to the contractor regarding which elements of the contractor’s operations will be reviewed and what information will be necessary to perform the review, as soon as practicable, both prior to and during the review.
(v) The should-cost review team report shall ensure, to the maximum extent practicable, review of current, accurate, and complete data, and shall identify cost savings opportunities associated with specific engineering or business changes that can be quantified and tracked.
215.407-5-70
Disclosure, maintenance, and review requirements.
(a)
Definitions.
(1) “Acceptable estimating system” is defined in
the clause at 252.215-7002, Cost Estimating System Requirements.
(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 deficiency” is defined in the clause at 252.215-7002, Cost Estimating System Requirements.
(b) Applicability.
(1) DoD policy is that all contractors have acceptable
estimating systems that consistently produce well-supported proposals that are
acceptable as a basis for negotiation of fair and reasonable prices.
(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 certified cost or pricing 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
certified 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)
Policy.
(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 section;
(ii) Consider whether to apply the disclosure,
maintenance, and review requirements to large business contractors under
paragraph (b)(2)(ii) of this section; and
(iii) Not apply the disclosure, maintenance, and
review requirements to other than large business contractors.
(2) The cognizant contracting officer, in consultation with the auditor, for contractors subject to paragraph (b)(2) of this section, shall—
(i) Determine the acceptability of the disclosure and approve or disapprove the system; and
(ii) Pursue correction of any deficiencies.
(3) The auditor conducts estimating system reviews.
(4) An acceptable system shall 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.
(5) In evaluating the acceptability of a contractor's estimating system, the contracting officer, in consultation with the auditor, shall determine whether the contractor's estimating system complies with the system criteria for an acceptable estimating system as prescribed in the clause at 252.215-7002, Cost Estimating System Requirements.
(d) Disposition of findings—
(1) Reporting of findings. The auditor shall document findings and recommendations in a report to the contracting officer. If the auditor identifies any significant estimating system deficiencies, the report shall describe the deficiencies in sufficient detail to allow the contracting officer to understand the deficiencies.
(2) Initial determination. (i) The contracting officer shall review all findings and recommendations and, if there are no significant deficiencies, shall promptly notify the contractor, in writing, that the contractor's estimating system is acceptable and approved; or
(ii) If the contracting officer finds that there are one or more significant deficiencies (as defined in the clause at 252.215-7002, Cost Estimating System Requirements) due to the contractor’s failure to meet one or more of the estimating system criteria in the clause at 252.215-7002, the contracting officer shall—
(A) Promptly make an initial written determination on any significant deficiencies and notify the contractor, in writing, providing a description of each significant deficiency in sufficient detail to allow the contractor to understand the deficiency;
(B) Request the contractor to respond, in writing, to the initial determination within 30 days; and
(C) Promptly evaluate the contractor’s responses to the initial determination, in consultation with the auditor or functional specialist, and make a final determination.
(3) Final determination. (i) The contracting officer shall make a final determination and notify the contractor, in writing, that——
(A) The contractor's estimating system is acceptable and approved, and no significant deficiencies remain, or
(B) Significant deficiencies remain. The notice shall identify any remaining significant deficiencies, and indicate the adequacy of any proposed or completed corrective action. The contracting officer shall—
(1) Request that the contractor, within 45 days of receipt of the final determination, either correct the deficiencies or submit an acceptable corrective action plan showing milestones and actions to eliminate the deficiencies;
(2) Disapprove the system in accordance with the clause at 252.215-7002, Cost Estimating System Requirements; and
(3) Withhold payments in accordance with the clause at 252.242-7005, Contractor Business Systems, if the clause is included in the contract.
(ii) Follow the procedures relating to monitoring a contractor's corrective action and the correction of significant deficiencies in PGI 215.407-5-70(e) (DFARS/PGI view).
(e) System approval. The contracting officer shall promptly approve a previously disapproved estimating system and notify the contractor when the contracting officer determines that there are no remaining significant deficiencies.
(f) Contracting officer notifications. The cognizant contracting officer shall promptly distribute copies of a determination to approve a system, disapprove a system and withhold payments, or approve a previously disapproved system and release withheld payments, to the auditor; payment office; affected contracting officers at the buying activities; and cognizant contracting officers in contract administration activities.
215.408
Solicitation provisions and contract clauses.
(1) Use the clause at 252.215-7002, Cost Estimating System Requirements, in all
solicitations and contracts to be awarded on the basis of certified cost or pricing data.
(2) When contracting with the Canadian Commercial Corporation—
(i)(A) Use the provision at 252.215-7003, Requirement for Submission of Data
Other Than Certified Cost or Pricing Data—Canadian Commercial Corporation—
(1) In lieu of 252.215-7010, Requirements for Certified Cost or Pricing
Data and Data Other Than Certified Cost or Pricing Data, in a solicitation, including solicitations using FAR part 12 procedures for the acquisition of commercial products and commercial services, for a sole source acquisition from the Canadian Commercial Corporation that is—
(i) Cost-reimbursement, if the contract value is expected to exceed
$700,000; or
(ii) Fixed-price, if the contract value is expected to exceed $500 million; or
(2) In lieu of 252.215-7010, in a solicitation, including solicitations using
FAR part 12 procedures for the acquisition of commercial products and commercial services, for a sole source acquisition from the Canadian Commercial Corporation that does not meet the thresholds specified in paragraph (2)(i)(A)(1), if approval is obtained as required at 225.870-4(c)(2)(ii); and
(B) Do not use 252.225-7003 in lieu of 252.215-7010 in competitive acquisitions; and
(ii)(A) Use the clause at 252.215-7004, Requirement for Submission of Data
Other Than Certified Cost or Pricing Data—Modifications—Canadian Commercial Corporation—
(1) In a solicitation, including solicitations using FAR part 12 procedures for the acquisition of commercial products and commercial services, for a sole source acquisition, from the Canadian Commercial Corporation and resultant contract that is—
(i) Cost-reimbursement, if the contract value is expected to exceed $700,000; or
(ii) Fixed-price, if the contract value is expected to exceed $500 million;
(2) In a solicitation, including solicitations using FAR part 12 procedures for the acquisition of commercial products and commercial services, for a sole source acquisition from the Canadian Commercial Corporation and resultant contract that does not meet the thresholds specified in paragraph (2)(ii)(A)(1), if approval is obtained as required at 225.870-4(c)(2)(ii); or
(3)(i) In a solicitation, including solicitations using FAR part 12 procedures for the acquisition of commercial products and commercial services, for a competitive acquisition that includes FAR 52.215-21, Requirement for Data Other Than Certified Cost or Pricing Data—Modifications, or that meets the thresholds specified in paragraph (2)(ii)(A) (1).
(ii) The contracting officer shall then select the appropriate clause to include in the contract (52.215-21 only if award is not to the Canadian Commercial Corporation; or 252.215-7004 if award is to the Canadian Commercial Corporation and necessary approval is obtained in accordance with 225.870-4(c)(2)(ii)); and
(B) The contracting officer may specify a higher threshold in paragraph (b) of the clause 252.215-7004.
(3) Use the provision at 252.215-7008, Only One Offer, in competitive solicitations that exceed the simplified acquisition threshold, including solicitations using FAR part 12 procedures for the acquisition of commercial products and commercial services.
(4) When the solicitation requires the submission of certified cost or pricing data, the contracting officer should include 252.215-7009, Proposal Adequacy Checklist, in the solicitation to facilitate submission of a thorough, accurate, and complete proposal.
(5) When reasonably certain that the submission of certified cost or pricing data or
data other than certified cost or pricing data will be required or when using the provision at 252.215-7008—
(i) Use the basic or alternate of the provision at 252.215-7010, Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data, in lieu of the provision at FAR 52.215-20, Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data, in solicitations, including solicitations using FAR part 12 procedures for the acquisition of commercial products and commercial services.
(A) Use the basic provision when submission of certified cost or pricing data is required to be in the FAR Table 15-2 format, or if it is anticipated, at the time of solicitation, that the submission of certified cost or pricing data may not be required.
(B) Use the alternate I provision to specify a format for certified cost or pricing data other than the format required by FAR Table 15-2;
(ii) Use the provision at 252.215-7011, Requirements for Submission of Proposals to the Administrative Contracting Officer and Contract Auditor, when using the basic or alternate of the provision at 252.215-7010 and copies of the proposal are to be sent to the ACO and contract auditor; and
(iii) Use the provision at 252.215-7012, Requirements for Submission of Proposals via Electronic Media, when using the basic or alternate of the provision at 252.215-7010 and submission via electronic media is required.
(6) Use the provision at 252.215-7013, Supplies and Services Provided by Nontraditional Defense Contractors, in all solicitations.
(7) Use the clause at 252.215-7014, Exception from Certified Cost or Pricing Data
Requirements for Foreign Military Sales Indirect Offsets, in solicitations and contracts
that contain the provision at 252.215-7010, Requirements for Certified Cost or Pricing
Data and Data Other Than Certified Cost or Pricing Data, when it is reasonably certain that—
(i) The contract is expected to include costs associated with an indirect offset; and
(ii) The submission of certified cost or pricing data or data other than certified cost or pricing data will be required.
(8) Use the clause at 252.215-7015, Program Should-Cost Review, in all solicitations and contracts for the development or production of a major weapon system, as defined in 234.7001.
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, include DD Form 1423, Contract Data Requirements List, in the
solicitation. See PGI 215.470(b) (DFARS/PGI view) for
guidance on the use of DD Form 1423.
(c) 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.
