CLC 056
Cost analysis is the review and evaluation of the separate cost elements and proposed
profit/fee of an offeror's certified cost or pricing data or data other than certified cost or
pricing data.
It is important to evaluate the separate cost elements and proposed profit/fee to
determine how the proposed costs represent the cost of the contract, assuming
reasonable economy and efficiency. - ANS-Contracting Officers are required to
purchase supplies and services from responsible sources at fair and reasonable prices.
This requirement is based on the three elements that form the foundation of the
government's pricing objective.
Government Objective:
purchase at fair and reasonable price
price each contract separately
exclude contingencies - ANS-In contracting, when you act as the government's buyer,
your primary objective is to acquire supplies and services from responsible sources at
fair and reasonable prices.
The three approaches acknowledged by the government to attain this objective are:
Price analysis
Cost analysis
Cost realism analysis
It is critical that you understand techniques and terms of cost analysis. Terms that are
important not only include cost analysis, price analysis, and cost realism analysis, but
also terms such as direct costs, indirect costs, and other direct costs.
In addition, there are techniques with which you should be familiar. These include the
various price analysis techniques and procedures that help the government to ensure a
fair and reasonable price.
You may be responsible for selecting the techni - ANS-In order to develop a
prenegotiation position, you will analyze contract costs and price using contract analysis
techniques.
,Prenegotiation objectives establish the government's initial negotiation position. The
Contracting Officer establishes prenegotiation objectives before the negotiation of any
pricing action.
There are many methods for estimating costs in an equitable and consistently applied
way. Some cost estimating texts identify ten or more! Some common methods are:
Round-table
Comparison
Detailed - ANS-Round Table
In a round table, experts are brought together to develop cost estimates by exchanging
views and making judgments based on knowledge and experience. This method is most
commonly used when there is little or no cost experience or detailed product information
(e.g., specifications, drawings, or bills of material).
Comparison
With the comparison method, costs for a new item are estimated using comparisons
with the cost of completing similar tasks under past or current contracts. Any differences
are isolated and cost elements applicable to the differences are deleted from or added
to experienced costs. Comparisons may be made at the cost element level or total price
level. Adjustments may also be made for possible upward or downward cost trends.
This method is most commonly used when specifications for th - ANS-Detailed
The detailed method is characterized by a thorough review of all components,
processes, and assemblies. It requires detailed information to arrive at estimated costs
and typically uses cost data derived from the accounting system, statistical records, and
other sources.
This method is most commonly used when the required information is available and
future production potential warrants the cost of the detailed analysis required. It is the
most accurate of the three methods for estimating direct cost. As you can imagine, it is
also the most time consuming and expensive.
Fairness to seller
Sellers need to be concerned about an unrealistic low price because of the risk.
Sellers need to be concerned about the market implications of a price that is too high.
Sellers need to be concerned about major mistakes in estimating costs.
,Sellers need to be concerned about recovering buy-in losses. - ANS-The three market
conditions are Competition, Supply and Demand, and General Economic Conditions.
Pricing contracts separately
Business conditions can change the specifics of government contracting.
Market forces like competition and supply and demand must be considered.
Balancing of one contract against another contract in financial results is not allowed. -
ANS-The final government objective is Exclude Contingencies. This objective requires
that contracts exclude contingencies that cannot be reasonably estimated at the time of
the award.
The definition of a contingency is a possible future event or condition arising from
presently known or unknown causes and the outcome cannot be determined at the
present time. - ANS-There are three types of analyses associated with analyzing
contract costs. They are:
Price Analysis
Cost Realism Analysis
Cost Analysis
adequate price competition, which is a form of price analysis. Adequate price
competition is an exception to obtaining certified cost or pricing data - ANS-he detailed
cost estimating method estimates based on an analysis of the methods and materials
required to complete each element of the work required by the contract
At the heart of this module is the Truth in Negotiations Act, which you will usually hear
referred to as "TINA."TINA is a public law enacted in 1962 for the purpose of providing
full and fair disclosure by contractors in the conduct of negotiations with the
government. TINA requires:
Contractors and subcontractors submit certified cost or pricing data for negotiated
procurements over $2 million.
Downward adjustment to the contract price, including profit or fee, where it is
determined that the - ANS-While TINA protects the government, the same laws that
establish requirements for certified cost or pricing data also provide for mandatory
exceptions. Never require certified cost or pricing data when an exception applies. Refer
to FAR 15.403-1 and DFARS 215.403-1 to learn more.
, Generally, except a procurement from TINA requirements if:
The negotiated price is based on adequate price competition
The price is set by law or regulation
The item is considered a "commercial" item (see FAR 2.101), unless it is a
non-commercial modification of a commercial item where the modification exceeds the
greater of $2 million or 5% of the contract price
The head of the contracting activity waives the requirement
TINA helps you as a Contracting Officer because it requires offerors to certify that their
certified cost or pricing data is current, accurate, and complete.
The certification TINA requires establishes information parity for the government when
having to negotiate fair and reasonable prices based on cost analysis, which in turn,
helps you achieve your ultimate goal of negotiating a fair and reasonable price.
For this reason, you must ensure that the certified cost or pricing data the contracto -
ANS-To obtain certified costs or pricing data
The FAR requires that certified cost or pricing data be submitted in one of three formats:
The format outlined in FAR Table 15-2, which you can review under the Resources tab
An alternate format outlined in the solicitation/contract
A format selected by the offeror
Certified cost or pricing data, cost or pricing data, and data other than certified cost or
pricing data are key terms associated with TINA - ANS-While the initial award amount
exceeded the TINA threshold of $2 million, the Contracting Officer determined through
market research that adequate price competition would exist for this requirement.
Therefore, the exception at FAR 15.403-1(b)(1) applied. Offerors were not required to
submit certified cost or pricing data.
Since the initial estimate of this modification is $20.9M, well over the threshold of $2
million, and no exceptions apply, we will require the offeror to submit certified cost or
pricing data. - ANS-Unless an exception applies, TINA and FAR 52.215-21 require the
submission of certified cost or pricing data for any modification expected to exceed the
current threshold, regardless of whether or not certified cost or pricing data were initially
required
