PREPARING COST PROPOSALS

Tangela Williams, CPA Sr. Cost/Price Analyst Cost and Price Analysis Branch

Vital Elements of A Proposal;Proposal Examples, includingOverhead Rate CalculationsGeneral & Admin (G&A) Rate CalculationUnallowable Costs;Preparing For an Audit;Common Deficiencies Found in Proposals.

TOPICS

VITAL ELEMENTS OF A PROPOSALSummary of Total Cost by Element Cross-referenced to each line itemBreakdown of Labor (FAR 15.408, Table 15-2 II.B.)HoursRates and Costs by Appropriate CategoryConsolidated Priced Bill of MaterialsTypes, Quantities, CostFAR 15.408, Table 15-2 II.A.

VITAL ELEMENTS OF A PROPOSALBASIS OF ESTIMATEHow Indirect Rates are ComputedHow Indirect Rates are Applied;Cost Breakdowns, Trends and Budgetary Data (FAR 15.408, Table 15-2 II.C.);Identification of All Other Costs by Category and Basis for Pricing (FAR 15.408, Table 15-2 II.D.);Rationale for Proposed Profit (FAR 14.404-4).

PROPOSAL EXAMPLES

SAMPLE PROPOSALXYZ Technologies, Inc.Washington, DCProposal Submitted in Response to RFP #IRS-Show-Me-The -MoneyELEMENT OF COST AMOUNTREFERENCEEngineering Labor $400,000Schedule 1Production Labor 30,000Schedule 1Direct Labor Overhead@60.0% 25,800Schedule 2Material 110,000Schedule 3Material Handling Overhead@5.0% 55,000Schedule 4Subtotal 620,800G&A @8.0% 49,664Schedule 5Estimated Cost 670,464Profit @10.0% 67,046Total Price $737,510

SAMPLE PROPOSALXYZ Technologies, Inc.Washington, DCProposal Submitted in Response to RFP #IRS-Show-Me-The -Money Engineering Labor CostSCHEDULE 1 Labor CategoryRate HoursTotalProgram Manager$40.00 1,000$ 40,000Sr. Engineer 28.00 9,000 252,000Jr. Engineer 24.00 4,500 108,000Total Eng Labor$400,000 ======= Production Labor Cost Labor CategoryRate HoursTotalFabrication$10.00 2,000$ 20,000Assembly 8.00 1,250 10,000Total Production Labor $ 30,000 ======

SAMPLE RFP COST PROPOSAL

MAINTENANCE SUPPORT CONTRACTSEE HANDOUT

PROPOSAL - EXERCISEYou are the owner of Small Company USA and you have just submitted a proposal to the federal Government. The Government has set aside the task of surveying a plot of land for the construction of a complex Government Building. The site is environmentally sensitive. Your company does not have the expertise to deal with the suspected pollutants believed to be under the site. Therefore, you have decided to subcontract certain aspects of the environmental site work to the only firm in the county that has the current technology to perform the necessary testing. This is your first proposal that you have prepared for the IRS. Even though the proposal is small, the C.O. has requested that DCAA perform a pre-award accounting survey and a review of your proposal.

What do you need to check out before the auditor arrives?What can you anticipate that DCAA will be requesting?

PROPOSAL EXERCISESmall Company, Inc.Proposal for Technical Support ServicesProposedReferenceTechnical Labor$ 75,000Schedule 1Labor Overhead 39,937Schedule 2Subtotal$114,937Subcontract Service 72,000Schedule 3Travel 3,000Schedule 4Total Cost Input$189,937G&A 54,004Schedule 2Total Cost$243,941Profit 24,394Total Price$ 268,335=======

PROPOSAL EXERCISESmall Company, Inc.Direct LaborNeed Support for the $75,000 bid in this proposal. Small Co. Inc. is bidding 2,500 hours at $30/hr.Need to provide the basis for the 2,500 hours and the $30 per hours.

PROPOSAL EXERCISESmall Company, Inc.Proposal for Technical Support ServicesSchedule 1

HoursRateAmountTechnical Labor (Note 1)2,500$30.00$75,000

NOTE 1: Hours are based on Contract XYZ which was performed in FY 200X and was similar to this effort. The hourly rate is based on the current average rate paid to Technical support staff. Payroll records are available upon request.

PROPOSAL EXERCISESmall Company, Inc.Proposal for Technical Support ServicesSchedule 2FY 2009 Budget DirectTotal Cost Overhead G&A UnallowableAdmin Labor$20,000 5,00015,000Depreciation 2,000 2,000Fringe Benefits 5,000 4,000 1,000Interest 8,000 8,000Office Supplies 5,000 5,000Tech Labor150,000150,000Rent 10,000 10,000Travel 5,000 3,000 2,000Telephone 1,000 1,000Payroll Taxes 6,000 6,000Subcontracts 72,000 72,000 Miscellaneous 60,000 45,000 14,000 1,000 Total $344,000225,000 80,000 30,000 9,000

PROPOSAL EXERCISESmall Company, Inc.Proposal for Technical Support ServicesOverhead Rate Calculation:Schedule 2Overhead Pool = $80,000 == 53.33%Direct Labor $150,000

G&A Rate Calculation:G&A Pool = $30,000 == 9.84%Total Cost Input $305,000

UNALLOWABLE COSTSDetermining Allowability (FAR 31.201-2);Reasonableness;Allocability;CAS (not applicable to small businesses), GAAP and practices appropriate to the particular circumstances;Terms of the Contract.

PROPOSAL EXERCISESmall Company, Inc.Proposal for Technical Support ServicesSubcontracted Services:

What is the basis for the $72,000 estimate?If it is sole source (which we put into the scenario), then Small Co. is responsible for analyzing for reasonableness.If competitive, then supply the quotes from the various bidders and explain why this one was selected.

PROPOSAL EXERCISESmall Company, Inc.Proposal for Technical Support ServicesTravel CostWhat is the basis and purpose of the $3,000 estimated travel?Proposal indicates this will be a direct cost (How do you know it is direct and not indirect?)Does the solicitation require a trip?What is the basis of the pricing?

PROPOSAL EXERCISESmall Company, Inc.Proposal for Technical Support ServicesTRAVELSchedule 4

Cost Element#of Trips #of daysCost TotalNOTESAirfare 3n/a$429$1,2871Car Rental 12 55 1052Lodging 33120 3603Incidentals 33 40 1204Mileage 3n/a 35 355Per Diem 33 40 1205 $3,000 =====NOTES: 1. Airfare estimated based on coach airfare from Denver to Baltimore April, 2009. Telephone quotes available upon request.Notes 2, 3, 4, 5 Provide a basis consistent with your companys policies and procedures (policy should be in accordance with Federal Travel Regulations).

PREPARING FOR AN AUDITPersonnel Familiar Readily AvailableAn Adequate Accounting SystemDetailed Schedules Used AvailableData Related to the Proposed Costs (Supporting Documentation) Readily AvailableProvide the Proposal and Supporting Data in Electronic FormatFinancial Statements of the Company

COMMON DEFICIENCIESLack of Supporting Data;No Basis of Estimate;Does Not Comply With RFP Instructions;Schedules Dont Tie Into Summary Amounts;No Grand Total Summary; andMath Errors.

REFERENCESFAR PART 15 Contracting By NegotiationFAR PART 31 Contract Cost PrinciplesOMB Circular A-122 Cost Principles for Non-Profit OrganizationsContract Pricing GuidesDCAA www.dcaa.milFAI http://www.acq.osd.mil/dpap/contractpricing/index.htm

QUESTIONS AND ANSWERS

Contractors can negotiate profit with the contracting officer. Typically, contracting officers use criteria in FAR.404-4 for establishing a profit objective. A weighted guideline structured approach is used when cost analysis is required.First, lets take a look at the proposal.Schedule 3 should include a reasonableness determination. For example, you could determine its reasonable based on rates charged to other vendors for similar effort. Obtain invoices from the subcontractor for the similar work for support.