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
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Slide1
FDA Business Management Team
Business Proposal Evaluation
Slide2Reasons for Business AnalysisCommon DefinitionsCommon Business Proposal (SB) IssuesPrice AnalysisExercise 1Cost AnalysisExercise 2Technique Determination & Other ConsiderationsPossible scenariosBusiness Analysis Report OutlinePivot Table DemonstrationQuestions
Agenda
Slide3Training 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
Slide4Reasons 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.
Slide5Importance 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.
Slide6Common 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
Slide7Common 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)
Slide8Common 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.
Slide9Sample 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?
Slide10Price 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.
Slide11Price 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?
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?
Slide13Cost 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
Slide14Cost 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
.
Slide15Key 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
Slide16Productive 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.
Slide17Key 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.
Slide18Key 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!
Slide19Fully 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%
Slide20Key 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.
Slide21Cost 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?
Slide22Cost 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
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
Slide24Key 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.
Slide25Technique 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)
Slide26Scenarios 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)
Slide27Other 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!
Slide28Sample Report StructureUsing Microsoft Excel Pivot Table for analysis
Appendix
Slide29Business 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
Slide30PIVOT Table Demonstration
Slide31Contact Information:Andrew D. McKennaEmail: andrew.mckenna@fda.hhs.govPhone: 240-402-7541
Questions?!