CLC 058 Exam 2023 with complete solutions

Cost or Pricing Data All facts that, as of the date of price agreement or an earlier date agreed upon between the parties, prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental, and are verifiable. While they do not indicate the accuracy of the prospective contractor's judgment about estimated future costs or projections, they do include the data forming the basis for that judgment. Cost or pricing data are more than historical accounting data; they are all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs and to the validity of determinations of costs already incurred. - Answer- Certified Cost or Pricing Data Cost or pricing data that were required to be submitted and have been certified, or are required to be certified. This certification states that, to the best of the person's knowledge and belief, the cost or pricing data are accurate, complete, and current as of a certain date before contract award. Data Other Than Certified Cost or Pricing Data Pricing data, cost data, and judgmental information necessary for the contracting officer to determine a fair and reasonable price or to determine cost realism. Such data may include the identical types of data as certified cost or pricing data, but without the certification. The data may also include, for example, sales data and any information reasonably required to explain the offeror's estimating process. - Answer- Direct Cost Any cost that is identified specifically with a particular final cost objective. Direct costs are not limited to items that are incorporated in the end product as material or labor. Costs identified specifically with a contract are direct costs of that contract. Facilities Capital Cost of Money FCCOM is used to compensate contractors for use of capital without regard to whether the source is owner's equity or borrowed. It is designed to help contractors achieve a return on their investment in facilities capital. It is NOT considered interest on borrowing, which is unallowable according to the FAR. - Answer- Fair and Reasonable Price A price must be considered fair to both parties. A price that a prudent and competent buyer would be willing to pay is a reasonable price. A fair and reasonable price is dependent on the market conditions, general economic conditions, promised quality, competition, alternative approaches, and timeliness of contract performance. Forward Pricing Rate Agreement A written agreement negotiated between a contractor and the Government to make certain rates available during a specified period for use in pricing contracts or modifications. - Answer- General and Administrative Expense Any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole. Indirect Cost Any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives (i.e. contracts) or with at least one intermediate cost objective. - Answer- Indirect Cost Rate A percentage or dollar factor that expresses the ratio of indirect expense incurred in a given period to an appropriate base for the same period. Price Cost plus any fee or profit applicable to the contract. - Answer- Pricing The process of establishing a reasonable amount to be paid for supplies or services. Note that the terms cost or pricing data and certified cost or pricing data are purely fact-based, while data other than certified cost or pricing data often includes judgmental information as well. The Federal Acquisition Regulation (FAR) defines many of these terms in even greater detail (see FAR 2.101). But don't worry. These terms may seem like a lot to absorb now, but you'll get acquainted with them by the end of the lesson! Also note that FAR 15.408 includes relevant solicitation provisions and contract clauses. - Answer- The Truth in Negotiations Act (TINA) established the requirement for submission of cost or pricing data and for contractors to certify that the data is accurate, complete, and current for the award of a negotiated contract (unless an exception per FAR 15.403-1(b) applies). The current TINA threshold effective on 1 July 2018 (and in accordance with Defense Pricing and Acqusition Policy (DPAP) Memo, Subject: Certified Cost and Pricing Data, dated 13 April 2018) is $2,000,000. Even though DPAP is now Defense Pricing and Contracting (DPC), the memo is still in effect - Answer- TINA also applies to contract modifications—even if certified cost or pricing data was not required on the initial contract—and takes into account the total of positive and negative adjustments that may exceed $2 million. Link to example According to FAR 15.403-1, the primary prohibition on obtaining certified cost or pricing data is for acquisitions at or below the simplified acquisition threshold (SAT). This accounts for most of the contract actions in the DoD that are exempt from the certified cost or pricing data requirement. However, this prohibition is in a category all by itself and is not considered an "exception." The five "exceptions" to the requirement are: When the contracting officer determines that prices agreed upon are based on adequate price competition; When the contracting officer determines that prices agreed upon are based on prices set by law or regulation; When a commercial item is being acquired; When a waiver has been granted by the Head of the Contracting Activity; and When modifying a contract or subcontract for commercial items. FAR 15.403-1(c) goes into significant detail on what each of the five exceptions involves, but let's look here at the details for the first exception, adequate price competition. Adequate price competition exists when:(i) Two or more responsible offerors, competing independently, submit priced offers that satisfy the Government's expressed requirement and if— (A) Award will be made to the offeror whose proposal represents the best value where price is a substantial factor in source selection (B) There is no finding that the price of the otherwise successful offeror is unreasonable. Any finding that the price is unreasonable must be supported by a statement of the facts and approved at a level above the contracting officer (ii) (Note: FAR 15.403-1(c)(1)(ii) does not apply to DoD acquisitions.) (iii) Price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items, adjusted to reflect changes in market conditions, economic conditions, quantities, or terms and conditions under contracts that resulted from adequate price competition. - Answer- The figure above demonstrates that contracting officers are prohibited from ever requiring certified cost or pricing data for acquisitions at or below the SAT. The contracting officer may require certified cost or pricing data for acquisitions above the SAT but below the TINA threshold with approval from the Head of the Contracting Activity. Finally, the contracting officer shall require certified cost or pricing data for acquisitions at or above the TINA threshold, unless one of the exceptions at FAR 15.403-1(b) applies. * Effective 1 July 2018 the new dollar threshold for TINA is $2,000,000. - Answer- According to FAR 15.407-1(a), defective cost or pricing data is any submitted certified cost or pricing data that are inaccurate, incomplete, or noncurrent—whether the defective data increases or decreases the contract price. If the Government relies on an offeror's certified cost or pricing data and that data is found to be defective after award, the Government is entitled to a price adjustment, including profit or fee, of any significant amount by which the price was increased because of the defective data. FAR 15.407-1(b)(4) allows contractors to submit an offset, under specific conditions, for understated certified cost or pricing data against the amount of a contract price reduction resulting from defective pricing. Offsets are only allowed up to the amount of the Government's claim for overstated pricing arising out of the same pricing action. Thus, as a result of defective pricing, a contract total price can never increase. - Answer- There are three basic principles of contract pricing that contracting officers are responsible for in federal acquisition: Purchase supplies and services from responsible sources at fair and reasonable prices Price each contract separately and independently Exclude contingencies 1. Purchase supplies and services from responsible sources at fair and reasonable prices A "fair and reasonable" price is what a prudent and competent buyer would consider fair. A price is considered fair to both parties depending on the agreed-upon market conditions, general economic conditions, promised quality, competition, alternative approaches, and timeliness of contract performance. A "fair and reasonable" price for the buyer (i.e., the Government) is (i) total allowable cost of providing the contract deliverable that would have been incurred by a well-managed, responsible firm using reasonably efficient and economical methods of performance, plus (ii) a reasonable profit. A "fair" price for the seller (i.e., the contractor) is what's realistic in terms of seller's ability to satisfy the terms and conditions of a contract. The Government uses price analysis to determine what a "fair and reasonable" price is. We'll examine price analysis in the next section on Proposal Analysis Techniques - Answer- 2. Price each contract separately and independently According to FAR 15.402(b), the contracting officer is required to price each contract separately and independently and not: (1) Use proposed price reductions under other contracts as an evaluation factor (2) Consider losses or profits realized or anticipated under other contracts 3. Exclude contingencies According to FAR 15.402(c), the contracting officer shall not include in a contract price any amount for a specified contingency to the extent that the contract provides for a price adjustment based upon the occurrence of that contingency. Unlike in many commercial pricing situations, the Government has created various clauses that allow a contractor to propose a reasonable price for the work to be performed without including a contingency for these conditions. An example of such a clause is the Differing Site Conditions clause (FAR 52.236-2), which would cover a situation where asbestos is found during a building renovation or there are unforeseen subsurface conditions uncovered during excavation. A different way to mitigate risk that is permitted by the FAR is by the use of an appropriate contract type. For example, a fixed-price with economic price adjustment type contract may be used when confronted by volatile commodity prices or market conditions. - Answer- FAR 15.402 pricing policy generally requires the contracting officer to use the following order of preference in determining the type of pricing information required: (1) No additional information from the offeror if the price is based on adequate price competition (2) Data other than certified cost or pricing data (e.g., established catalog or market prices, sales to non-governmental and governmental entities) (3) Certified cost or pricing data If the contracting officer believes he or she has enough information available to determine price reasonableness, then he/she should consider requesting a waiver under the exception at FAR 15.403-1(b)(4).If a waiver is not granted, then unless another exception applies, certified cost or pricing data is required. The order of preference shown above applies only if certified cost or pricing data is not required by FAR 15.403-4(a)(1)(i-iii). The purpose of proposal analysis is to ensure that the final agreed-to price is fair and reasonable. The level of detail required for the analysis depends on the complexity and circumstances of each acquisition. FAR 15.404-1 describes six proposal analysis techniques. Let's look at each one in turn, select each link to learn more: - Answer- price analysis: the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit use when: certified cost or pricing data are not required Cost Analysis The review and evaluation of the separate cost elements and profit in an offeror's or contractor's proposal, and the application of judgment to determine how well the proposed costs represent what the cost of the contract should be. Use when: Evaluating the reasonableness of individual cost elements when certified cost or pricing data are required. The Government may use price analysis to determine the overall price fair and reasonable in conjunction with cost analysis. Cost analysis is never performed on sealed bids. - Answer- Technical Analysis Technical analysis is used for examining:(i) Types and quantities of material proposed and the need for the types and quantities of labor hours and the labor mix.(ii) Any other data that may be pertinent to an assessment of the offeror's ability to accomplish the technical requirements or to the cost or price analysis of the service or product being proposed should also be included in the analysis. Use when: The contracting officer wants to determine the need for and the reasonableness of the proposed resources, assuming reasonable economy and efficiency. - Answer- 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: (i) are realistic for the work to be performed; (ii) reflect a clear understanding of the requirements; and(iii) are consistent with the various elements of the offeror's technical proposal. The "probable cost" should reflect the Government's best estimate of the cost of a contract that is likely to result from the offeror's proposal. Use when: Determining the probable cost of performance for each offeror on a cost reimbursement type contract. Cost realism analysis may be used on competitive fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price contracts when:(i) new requirements may not be fully understood by competing offerors, (ii) there are quality concerns, or(iii) past experience indicates that contractors proposed costs have resulted in quality or service shortfalls. Unit Prices Unit prices must reflect the intrinsic value of an item or service and be in proportion to an item's base cost (e.g., manufacturing or acquisition costs). Any method of distributing costs to line items that distorts the unit prices shall not be used. For example, distributing costs equally among line items is not acceptable except when there is little or no variation in the base cost. Use when: Except for the acquisition of commercial items, contracting officers shall require that offerors identify in their proposals those items of supply that they will not manufacture or to which they will not contribute significant value, unless adequate price competition is expected. - Answer- Unbalanced pricing Unbalanced pricing may increase performance risk and could result in payment of unreasonably high prices. It exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly over or understated as indicated by the application of cost or price analysis techniques. The greatest risks associated with unbalanced pricing occur when:(i) Startup work, mobilization, first articles, or first article testing are separate line items;(ii) Base quantities and option quantities are separate line items; or(iii) The evaluated price is the aggregate of estimated quantities to be ordered under separate line items of an indefinite-delivery contract. Use when: All offers with separately priced line items or subline items shall be analyzed to determine if the prices are unbalanced. While we know that contractors derive their prices from the buildup of individual cost elements such as material, labor, equipment, overhead and profit, we do not evaluate individual elements in price analysis. Instead, we evaluate "bottom line" prices. Take a look at the hypothetical cost breakout below — - Answer- Price analysis is concerned with the total contract price (or alternatively, the unit price) Although contractors internally determine what types and how much of the various cost elements are required to perform a particular service or supply a certain item, we compare only the final price to some external factor. Price analysis always involves some kind of comparison. - Answer- Price Analysis The methods (or bases for comparison) listed at FAR 15.404-1(b)(2) are: (i) Comparison of proposed prices received in response to the solicitation (ii) Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items (iii) Use of parametric estimating methods/application of rough yardsticks (iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate arrangements (v) Comparison of proposed prices with independent Government cost estimates (vi) Comparison of proposed prices with prices obtained through market research for the same or similar items (vii) Analysis of pricing information provided by the offeror Price Analysis The first two techniques at 15.404-1(b)(2) are the preferred techniques: Comparison of proposed prices received in response to the solicitation Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items Comparison of a proposed price with other proposed prices received in response to the same solicitation is generally considered one of the best bases for price analysis, as all offers were submitted to meet the sa