Price, Cost and Finance - Pricing Tools

Sole Source Streamlining Tool

The DoD Sole Source Streamlining Toolbox is a living document encompassing over 40 techniques which can be leveraged to increase efficiency throughout the acquisition process.

The basic principles are:

  • Obtaining the right information up front to avoid rework
  • Avoiding duplication of effort and taking advantage of all available resources
  • Considering materiality when making decisions about the level and depth of reviews
  • Elevating major issues in a timely manner
  • Promoting open communications with contractors

Sole Source Streamlining Tool Box

Incentive Tools

The following tools allow the user to automatically calculate key parameters and outcomes for the Cost Plus Incentive Fee (CPIF) and Fixed Price Incentive – Firm Target (FPIF) contract types. They also provide the user with a graphical display of the contemplated contract geometry under each type:

Pricing Variable Quantity Tools

The following tools are available to acquisition professionals who are considering the utilization of variation in quantity pricing curves.

These tools reflect two of the three different methodologies for pricing variable quantities as discussed in the “Pricing Variable Quantities” webinar as part of the Striking the Balance Series. This training can be found here. It is important to understand the different methodologies before deciding which methodology is best suited for your acquisition.

Performance Based Payments Tool

The amount and timing of contract financing has a direct impact on the cost to the Government and the financial outcome to the contractor as measured by the Internal Rate of Return (IRR) and Net Present Value (NPV) of the contract cash flows. The purpose of this tool is to demonstrate the financial impact to both the Government and the contractor of using PBPs versus customary progress payments.

For assistance with the Performance Based Payments Tool, please emailosd.pentagon.ousd-a-s.mbx.dpc-pcf@mail.mil

For a PCF training demonstration on how to use the PBP tool, clickhere.

A Win-Win

PBPs offer a unique opportunity for a real "Win-Win" financial arrangement for the Government and the contractor. This opportunity presents itself due to the Government and the contractor having differing views of the time-value of money. The "Win" for the contractor is better cash flow resulting in a more favorable financial outcome as measured by the IRR and NPV of the cash flows at a reduced contract price.

The "Win" for the Government is a lower contract price that more than offsets the additional financing costs of providing a better cash flow to the contractor. The PBP Analysis Tool employs a discounted cash flow analysis to help the contracting officer to determine the Win-Win financial solution for any PBP arrangement. The tool provides a unique and simple to use “what if” feature on the timing of PBP event completion and payment that enables both sides to objectively assess the potential risk of PBPs in determining the Win-Win solution.

Progress Payments-the Benchmark

Customary progress payments are used as the benchmark for determining a Win-Win arrangement for several reasons. First, progress payments are the financing method most commonly utilized between the Government and Industry. Second, progress payments are considered by industry to be a low-risk form of financing. For these reasons, the customary progress payment scenario is the right financial benchmark for a risk/reward analysis.

Downloading and Using the Tool

Version 7.0 incorporates a change to lag times and reflects the discount rates current as of July 5, 2022. Contracting Officers should be more aware of the circumstances that can result in a negative level of contractor investment in the contract when using PBPs and a front-loaded expenditure profile is a common reason for that to occur. As with prior versions, the PBP Tool does not automatically adjust PBP event values to ensure they never exceed the cumulative Contractor Expenditure Costs entered on the Data Input sheet in accordance with the Class Deviation 2019-O0011 effective 20 Aug 2019, which eliminated the PBP cost limitation. Therefore, it is incumbent on the contracting officer to make greater effort to comply with the FAR requirement in 32.1004(b)(3)(ii). See "Version Notes" for other changes. The tool allows the user to select between “New Award” and “Conversion”. The “New Award” option is the default selection that assumes the contract will be a new award using PBPs. The “Conversion” option is used when converting an on-going contract from progress payments or any other type of financing to PBPs. The tool uses XNPV and XIRR functions which are standard functions in Excel 2007 and later versions but are only contained in Microsoft's Analysis Toolpak on earlier versions. The steps needed to enable the Analysis Toolpak in Excel 97-2003 are under the "Important Notes" section of the Instructions – Basic tab.

Users should review the following tabs within the tool before use:

  • Version Notes
  • Instructions-Basic
  • Instructions-Conversion
  • Data Input
  • Win-Win Analysis
  • Discount Rates
  • Comparison Graph
  • Using the Model
  • Assumption Explanations
  • Data Input and Sample

The PBP tool, demo versions for a new award and a conversion are available for download at the links below: