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FDA Business Management - PowerPoint Presentation

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FDA Business Management - PPT Presentation

Team Business Proposal Evaluation Reasons for Business Analysis Common Definitions Common Business Proposal SB Issues Price Analysis Exercise 1 Cost Analysis Exercise 2 Technique Determination amp Other Considerations ID: 776462

cost analysis price 000 cost analysis price 000 proposed costs hours offeror labor rate realism contract proposal direct amp

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Presentation Transcript

Slide1

FDA Business Management Team

Business Proposal Evaluation

Slide2

Reasons for Business AnalysisCommon DefinitionsCommon Business Proposal (SB) IssuesPrice AnalysisExercise 1Cost AnalysisExercise 2Technique Determination & Other ConsiderationsPossible scenariosBusiness Analysis Report OutlinePivot Table DemonstrationQuestions

Agenda

Slide3

Training Goals

Understand the process and methodology in

performing business analysis

Selecting the correct technique for analysis for respective contract action

How to apply each technique to the analysis

Evaluation / Source Selection Success

Reduce Risks of Protests

Obtain the Best Value

Desired Outcomes

Slide4

Reasons for Business Analysis

FAR

15.402(a) – Pricing

Policy

states

The contracting officer shall purchase supplies and services from responsible sources at

fair and reasonable prices.

WARNING! FAR Cites Ahead!

FAR 15.304(c)(1

)

states

Price or cost

shall be evaluated in every source selection.

Contracting Officers and Contract Specialists are business

advisors

Assist

customers

to

make good

business

decisions.

Be prudent but fair with

contractors.

Slide5

Importance of Solicitation Language

Brain teaser – Which takes precedence, the FAR or the Solicitation?

The FAR States

Review Solicitation Language Carefully

Separate and Independent

Analysis must be performed in accordance

with the

solicitation

language

to avoid

protest FAR - 15.305(a).

Shall evaluate competitive proposals and then assess their relative qualities solely on the factors and subfactors specified in the

solicitation – FAR 15.305(a).Proposal instruction - Section LEvaluation factor - Section M

Price each contract separately and independently - 15.402(b).Do not use proposed price reductions under other contracts as an evaluation factor; or consider losses or profits realized or anticipated under other contracts.

Slide6

Common Definitions

Fair – Fair market value, reasonable profit for offeror.

Realism - whether the estimated proposed cost elements are realistic for the work to be performed, FAR 15.404-1(d)(1).

Reasonableness - Does not exceed that which would be incurred by a prudent person in the conduct of competitive business, FAR 31.201-3.

Underbidding, usually in a competitive environment

Overbidding, Sole-source & Competitive environments

Slide7

Common BA Issues - Small BusinessesFDA Specific

SB Cost Proposal Considerations

Gov’t must verify that SB Offerors have an adequate accounting system for any cost-type proposal (FFP exempt)

Verification must be based on an independent Gov’t accounting system audit

Absence of assumptions

Can result in confusion / misunderstanding between Industry and the Government

Small Business vs. Large Business

Pricing

At times small businesses do not provide a basis for their proposed pricing

C

onsequently this makes it difficult for the Gov’t to determine if prices are fair, realistic, and reasonable.

Labor Rates (LRs)

Small businesses have a greater tendency to propose LRs not aligned to commercial rates (i.e. GSA Schedules)

Slide8

Common BA Issues - Small BusinessesGeneral

Mentor-Protégé program not widely understood

Mentor may be treated as subcontractor with a misunderstood 50% performance requirement though SBA has not expressly set a performance requirement. This is supported by allowing the Mentor to create a JV and perform as a

Prime.

FAR

19.1307 Price evaluation preference for

HUBZone

The

contracting officer shall give offers from HUBZone small business concerns a price evaluation preference by adding a factor of 10 percent to all

non-HUBZone offers.

Responsibility

Determination

CO

may defer to SBA

for the “Certificate

of

Competency”. However, Small Businesses can provide this in response to the RFP => reduces overall processing time.

Slide9

Sample Solicitation Language

“The evaluation of cost reasonableness and realism analysis will consider the extent to which proposed labor hours, labor mix, and labor rates indicate a clear understanding of the first task order requirements, reflects a sound approach to satisfying those requirements, and is consistent with the approach described in the Offeror’s technical volume proposal. This assessment will consider technical and management risks identified during evaluation of the business proposal. Unrealistically low proposed rates/hours (initially or subsequently) may be grounds for eliminating a proposal from competition on the basis that the Offeror either doesn’t understand the requirement or has made an unrealistic quote.”

What

MUST

be evaluated and documented based on the solicitation language?

Slide10

Price Analysis

Price analysis shall be used when certified cost or pricing data are not required - FAR 15.404-1(b)  note the different FAR cite!

Key of Price Analysis

Differences of Price vs Cost

Evaluated without reviewing separate cost elements of a proposal

.Price analysis should be used to verify that the overall price offered is fair and reasonable.FAIR and Reasonable normally established by adequate price competition. FAR 15.404-1(b)(2)(i)

Price Analysis Techniques

Comparison of proposed prices with independent Government cost estimate (IGCE

).

Comparison of the proposed prices to historical prices

paid. Use of parametric estimating methods/application of rough yardsticks.Comparison with competitive published price lists.Comparison of proposed prices with prices obtained through market research for the same or similar items.Analysis of data other than certified cost or pricing – can be very useful.

Slide11

Price Analysis Exercise (1)

 Offeror 1Offeror 2Offeror 3Offeror 4Offeror 5Delivery Time20 days20 days20 days30 days30 daysOSHA ComplianceYesYesNoYesNoSmall BusinessYesYesYesNoYesT/C ExceptionNoneNoneNoneNoneNoneUnit Price$68 $70 $77 $79 $80 Volume Discount4%5%7%7%6%Extended Pricex 1,000 UnitsPlease CalculatePlease CalculatePlease CalculatePlease CalculatePlease CalculatePayment Terms1%/20 days, Net 30 days5%/15 days, Net30 daysNet 30 days3%/15 days, Net 30 day2%/10 days, Net 30 days

A requisition is received for 1,000 first-aid kits for an emergency planning exercise. The kits must be Occupational Safety & Health

Administration

(OSHA) compliant

and

received within 21 days.

Who would you award the delivery order to?

Slide12

Price Analysis Exercise (2)

 Offeror 1Offeror 2Offeror 3Offeror 4Offeror 5Delivery Time20 days20 days20 days30 days30 daysOSHA ComplianceYesYesNoYesNoSmall BusinessYesYesYesNoYesT/C ExceptionNoneNoneNoneNoneNoneUnit Price$68 $70 $77 $79 $80 Volume Discount4%5%7%7%6%Extended Pricex 1,000 Units$65,280$66,500$71,610$73,470$75,200Payment Terms1%/20 days, Net 30 days5%/15 days, Net30 daysNet 30 days3%/15 days, Net 30 day2%/10 days, Net 30 daysAfter Payment Discount$64,627 $63,175 $71,610$71,266 $73,696

After payment discount Offeror 2 has the lowest proposed price, but what is the risk for the Government?

Why do some vendors offer payment term discounts?

Slide13

Cost Realism Analysis

The process of independently reviewing and evaluating specific elements of each Offeror’s proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed - FAR 15.404-1(d)(1)

Key of Cost Realism Analysis

Must be performed

on

all cost reimbursement contracts.Process of evaluating the methodology used by the offeror (contractor) to estimate proposed costs.Use information other than cost or pricing data to evaluate – FAR 15.404-1(a)(4)Similar to a cost analysis, less extensive and not as exact.

Cost Realism Analysis

Techniques

Perform a technical analysis of the proposed types and quantities of materials, labor, processes,

etc..

Examine the types and quantities of labor and material proposed.Evaluate pricing related to similar or commercial items requiring minor modifications to determine magnitude of changes.Compare Government’s “probable” cost of performance with each offeror’s proposed costs to determine best value

Slide14

Cost Analysis

Review and evaluation of any separate cost elements and profit or fee in an Offeror's proposal, as needed to determine a fair and reasonable price or to determine cost realism, and to determine how well the proposed costs represent the contract - FAR 15.404-1(c)(1)

Key of Cost Analysis

Must be performed

on sole-source contracts.

More laborious than price analysis and cost realism analysis. Similar to a cost realism analysis, but more extensive and more exact.

Cost Analysis

Techniques

Comparison

of costs proposed by the offeror for individual cost elements with:

Actual costs previously incurred by the same offeror

Previous cost estimates from the offeror or from other offerors for the same or similar

items.

IGCEs.

Forecasts of planned

expenditures.

Other cost estimates received in response to the Government’s

request.

Review to determine whether

any additional

cost data or pricing data, necessary to make the

Offeror's

proposal suitable for

negotiation

.

Slide15

Key Cost Elements – Direct Costs

L

abor hours that are direct support and within scope of the contract. Proposed labor should be based on the requirementHours and rates clearly shown by specific category.The annual hours that vendor used to define an FTE should be reviewed

Direct Labor

ODC/Material

Travel costs, including airfare, per diem,

etc.. may be allowed in direct support of the contract.

Details should be requested if travel cost is expected to be a factor

The contractor may not have to adhere to the JTR if such language is not included in the contract

G&A may be assessed on travel costs.

Travel

Costs used in direct support of the contract and may

include:

Subcontractor costs

Consultant costs

Lease

of equipment

Computer

Hardware

Software licenses

Item descriptions, quantities and

cost

estimates can be obtained using

catalogs, price quotes, historical

data,

etc..

Emphasis in estimating

ODCs

is accuracy in type and

quantity

Slide16

Productive Hours Calculation Example: Starting Point 2,080 hoursLess: Holiday 80 hoursAnnual Leave 80 hoursSick Leave 40 hoursTraining, misc. 40 hours 240 hoursProductive Hours: 1,840 hours

Full-Time Equivalent Example

*Sample calculation. Productive hours varies depending on individual vendor accounting systems.

Slide17

Key Cost Elements – Indirect Costs (1)

An

indirect rate for the purpose of allocating items such as:Health insurancePayroll taxesHoliday and vacation timePension & etc.. Fringe rate is applied to total direct labor proposed. The rate may vary significantly from vendor to vendor

Fringe Benefits

An indirect rate that pertain

s

to a department or cost center that benefits two or more projects/contracts such as: DepreciationIndirect laborTelephone and computers etc..Usually structure relatedOH rate is applied to total direct labor only or total direct labor plus fringe benefits*

Overhead

An indirect rate

that pertains

to

activities such as:Salary for administrative assistantsHuman resource departmentUsually activities related and benefits the entire company/cost centerG&A rate is applied to total direct labor plus fringe benefits, overhead, material handling (if applicable), and all direct costs.

G&A

Material Handling

An indirect rate

that usually applies

to

ODC/Material costs.

Typically a rate significantly lower than the G&A

For newer companies and/or small businesses, sometimes the G&A rate is used. Verify through proposal and billing consistency

MH costs

may include

appropriate

indirect costs allocated to direct materials

based on contractor

accounting procedures and must not include any fee or

profit

Material Handling rate is typically applied to all ODC and Material costs.

Slide18

Key Cost Elements – Indirect Costs (2)

FCCM

Facilities Capital Cost of

Money

Facilities capital cost of money is an imputed cost related to the cost of contractor capital committed to facilitiesCalculated by multiplying the net book value of the business-unit's facilities investment by a cost of money rate based on the interest rates specified semi-annually by the Secretary of the Treasury under Public Law 92-41Usually not a significant cost and profit is not allowed

Note

: Each vendor may apply their indirect rate differently based on how their accounting system is set up.

Important Note!

Slide19

Fully Burdened Rate Build-Up Example

*All indirect rates used herein are fictitious and for demonstrative purposes only

Labor CategoryIT Specialist 1 RateCalculationDirect Labor Rate$26.83A  Fringe Benefits$8.05B30%B= A x 30%Overhead$12.21C35%C= (A+B) x 35%G&A$6.59D14%D= (A+B+C) x 14%Profit$3.76E7%E = (A+B+C+D) x 7%Fully Burdened Hourly Rate$57.44F F = Sum of A, B, C, D, E

For this example, the total burden to direct labor is approximately 114%

Slide20

Key Cost Elements - Fee

Question – What determines the level of fee rate/%?

FAR 15.404-4(c)

Profit

states

CPFF fee is limited at 10% - FAR 15.404-4(c)(4)(i)(C)CPFF fee is limited at 15% for R&D requirements- FAR 15.404-4(c)(4)(i)(A)

FAR does not provide specific guidance on fee for fixed-price and other cost reimbursement contracts, but competition can help the determination.

HHSAR 315.404-4 provides detailed guidance on a structured approach for establishing profit objective for negotiation.

Typically, the fee rate/% is dependent on the amount of

risk,

market factors, and any other unique factors that may affect the operation or location of the effort.

Slide21

Cost Realism Analysis Exercise (1)

OAGS is contracting for 1 year of computer server maintenance services. A CPFF contract is intended. Assuming all Offerors are technically equal and acceptable,

W

ho appears to be underbidding?

What adjustments need to be made for cost realism analysis?

W

ho offers the best value?

Slide22

Cost Realism Analysis Exercise (2)

Offerors’ Proposed Costs

Cost Element

Offeror 1

 

Offeror 2

 

Offeror 3

 

Direct Labor

 

 

 

 

 

 

IT Specialist I

$60,000

 

$55,000

 

$65,000

 

Program Analyst II

$75,000

 

$65,000

 

$70,000

 

Computer Engineer II

$90,000

 

$80,000

 

$85,000

 

Project Manager

$100,000

 

$90,000

 

$95,000

 

Subtotal

$325,000

 

$290,000

 

$315,000

 

Fringe Benefits

$130,000

40%

$101,500

35%

$129,150

41%

Overhead

$182,000

40%

$137,025

35%

$168,777

38%

Subtotal

$637,000

 

$528,525

 

$612,927

 

Material

$60,000

 

$57,500

 

$48,000

 

Travel

$4,000

 

$3,500

 

$5,000

 

Total Cost Input

$701,000

 

$589,525

 

$665,927

 

G&A

$77,110

11%

$58,953

10%

$79,911

12%

Total Cost

$778,110

 

$648,478

 

$745,838

 

Profit

$54,468

7%

$19,454

3%

$89,501

12%

Total Price

$832,578

 

$667,932

 

$835,339

 

Assumptions

1. FTE based on 1880 hours

2. Material includes warranty

 

1. FTE based on 1840 hours

2. Material includes warranty

 

1. FTE based on 1920 hours

2. Material excludes warranty

 

Slide23

Cost Realism Analysis Exercise (3)

Governments’ Probable Costs

Cost ElementOfferor 1 Offeror 2 Offeror 3 Direct Labor      IT Specialist I$60,000  $56,196 1.022$63,646 0.979Program Analyst II$75,000  $66,413 1.022$68,542 0.979Computer Engineer II$90,000  $81,739 1.022$83,229 0.979Project Manager$100,000  $91,957 1.022$93,021 0.979Subtotal$325,000  $296,304  $308,438  Fringe Benefits$130,000 40%$103,707 35%$126,459 41%Overhead$182,000 40%$140,004 35%$165,261 38%Subtotal$637,000  $540,015  $600,158  Material$60,000 0%$57,500 0%$57,600  20%Travel$4,000  $3,500  $5,000  Subtotal Cost Input$701,000  $601,015  $662,758  G&A$77,110 11%$60,101 10%$79,531 12%Total Cost$778,110  $661,116  $742,289  Profit$54,468 7%$19,833 3%$74,229 10%Total Price$832,578  $680,950  $816,517  Assumptions: 1. FTE based on 1880 hours, offeror 1 not adjusted2. Material warranty is estimated at 20% for Offeror 33. Profit adjusted to 10% for Offeror 3 as this is the max fee for CPFF

Material Warranty estimated at 20% for Offeror 3

Fee adjusted to 10% for Offeror 3

Labor Costs adjusted based on 1 FTE = 1880 annual hours

Slide24

Key Cost Elements – Direct Costs

Most significant element that drives the overall cost in most cases

Proposed labor should be based on the requirement.Hours and rates clearly shown by specific category.

Direct Labor

From

vendor to vendor, review the hours for a FTE carefully. Caution - each vendor may define an FTE differently based on their business practices and accounting system.

Full-Time Equivalent(FTE)

A FTE is calculated from total

available hours:40 hours/week, 52 week in a year = 2,080 hoursUse 2,080 hours as the base and deduction of the following: vacation days, sick leave, holidays and training allowance etc., which defines the actual FTE for the vendor. Calculated “productive” hours can vary based on how each vendor accounts for their indirect activities. i.e. Some vendors may observe 8 Federal holidays or does not allocate hours for training.

Slide25

Technique Determination

The analysis technique is generally determined based on contract type and can be confirmed by the necessity of certified cost and pricing data. Note: BMT uses a hybrid technique, which includes Price Analysis and Cost Realism.

Certified Cost

or

Pricing Data - 15.404-1(a)(2)

Contract Type

TechniqueSelection

Technique Determination

Fixed-Price Contract Actions

FFP / FPIF - cost

realism & price analysisSole-source – cost analysis Cost Reimbursement Contract ActionsCompetitive - realism, (lower LCAT mix, fee rate) vs. cost analysis for sole-source (higher LCAT, fee)

Price analysis when not required – FAR 15.404-1(a)(2)Under SATAdequate competition - 15.403-1(c), Price set by law or regulation (i.e. public utility)Commercial itemsHCA WaiversCost analysis when required – FAR15.404-1(a)(3)

Slide26

Scenarios and possible technique

Type

of Contract Action

Possible Technique

Reason

GSA/FSS Schedule

Price

Analysis

Competition,

Commercial Item

BPA

Cost Realism,

Price Analysis

CR

for Base, PA for calls

Competitive Solicitation, including

Set-Aside

Cost Realism,

Price Analysis

Depending on Contract

Type

IDIQ/Multiple

award

Cost Realism,

Price Analysis

Depending on Contract

Type

GWAC/NIH

NITACC

Price Analysis

Competition,

Commercial Item

Sole-Source

over SAT (including single source directed 8(a))

Cost Analysis

No

Competition, Certified CP data required (TINA $700K)

Slide27

Other Important Considerations

Review each assumption in a proposal carefully as they may have significant cost impact. i.e. “Assuming software licenses will be provided by the government with annual renewal.”

Proposal Assumptions

Ensure all required documents are submitted (adherence to Section L).

Check for math errors and all other inconsistencies.

Pricing information is included for all contract years.

Review Proposals in Detail

If you feel something is wrong, peel the onion!

Why is

a proposal particularly

high or low?Put yourself in the shoes as the decision-maker. What would help you make a decision?

Trust Your Instinct

In reviewing the proposals, including the proposal assumptions, document every finding that may impact the proposed price or cost.

Incomplete submission or missing section

Calculation errorsAssumptions that may have price or cost impact Prepare a list of findings that can be used for clarification.

Document! Document! Document!

Slide28

Sample Report StructureUsing Microsoft Excel Pivot Table for analysis

Appendix

Slide29

Business Analysis Report – Sample Structure

Background (reference RFP)

Evaluation Methodology (reference RFP & FAR)

Competition

Adequacy (reference RFP & FAR)

Evaluation Findings (IDIQ / Task Order)

Price Analysis

Cost Realism Analysis (labor rates)

Level of Effort (LOE) Analysis

Hours and/or FTEs

Issues and Clarifications

Assumptions reviewed (reasonable / realistic)

Summary

Slide30

PIVOT Table Demonstration

Slide31

Contact Information:Andrew D. McKennaEmail: andrew.mckenna@fda.hhs.govPhone: 240-402-7541

Questions?!