PREPARING COST PROPOSALS Tangela Williams, CPA Sr. Cost/Price

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

TOPICS Vital Elements of A Proposal; Proposal Examples, including Overhead Rate Calculations General & Admin (G&A) Rate Calculation Unallowable Costs; Preparing For an Audit; Common Deficiencies Found in Proposals.

VITAL ELEMENTS OF A PROPOSAL Summary of Total Cost by Element Breakdown of Labor (FAR 15.408, Table 15-2 II.B.) Cross-referenced to each line item Hours Rates and Costs by Appropriate Category Consolidated Priced Bill of Materials Types, Quantities, Cost FAR 15.408, Table 15-2 II.A.

VITAL ELEMENTS OF A PROPOSAL BASIS OF ESTIMATE How Indirect Rates are Computed How 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 PROPOSAL XYZ Technologies, Inc. Washington, DC Proposal Submitted in Response to RFP #IRS-Show-Me-The -Money ELEMENT OF COST Engineering Labor AMOUNT REFERENCE 400,000 Schedule 1 Production Labor 30,000 Schedule 1 Direct Labor [email protected]% 25,800 Schedule 2 110,000 Schedule 3 55,000 Schedule 4 Material Material Handling [email protected]% Subtotal G&A @8.0% Estimated Cost Profit @10.0% Total Price 620,800 49,664 670,464 67,046 737,510 Schedule 5

SAMPLE PROPOSAL XYZ Technologies, Inc. Washington, DC Proposal Submitted in Response to RFP #IRS-Show-Me-The -Money Engineering Labor Cost Labor Category Program Manager Sr. Engineer Jr. Engineer Total Eng Labor 28.00 24.00 Rate 40.00 9,000 4,500 SCHEDULE 1 Hours 1,000 Total 40,000 252,000 108,000 400,000 Production Labor Cost Labor Category Fabrication 10.00 Assembly 8.00 Total Production Labor Rate 2,000 1,250 Hours Total 20,000 10,000 30,000

SAMPLE RFP COST PROPOSAL MAINTENANCE SUPPORT CONTRACT SEE HANDOUT

PROPOSAL - EXERCISE You 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 EXERCISE Small Company, Inc. Proposal for Technical Support Services Proposed Technical Labor Labor Overhead Subtotal Subcontract Service Travel Total Cost Input G&A Total Cost Profit Total Price 75,000 39,937 114,937 72,000 3,000 189,937 54,004 243,941 24,394 268,335 Reference Schedule 1 Schedule 2 Schedule 3 Schedule 4 Schedule 2

PROPOSAL EXERCISE Small Company, Inc. Direct Labor Need 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 EXERCISE Small Company, Inc. Proposal for Technical Support Services Schedule 1 Technical Labor (Note 1) 2,500 Hours 30.00 Rate Amount 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 EXERCISE Small Company, Inc. Proposal for Technical Support Services Schedule 2 FY 2009 Budget Direct Total Admin Labor Depreciation Fringe Benefits Interest Office Supplies Tech Labor Rent Travel Telephone Payroll Taxes Subcontracts Miscellaneous Total 20,000 2,000 5,000 Cost 5,000 2,000 4,000 Overhead 15,000 G&A Unallowable 1,000 8,000 5,000 150,000 10,000 5,000 1,000 6,000 72,000 60,000 8,000 5,000 150,000 3,000 10,000 2,000 1,000 6,000 72,000 344,000 45,000 225,000 14,000 80,000 1,000 30,000 9,000

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services Overhead Rate Calculation: Overhead Pool 80,000 53.33% Direct Labor 150,000 G&A Rate Calculation: G&A Pool 30,000 Total Cost Input 305,000 9.84% Schedule 2

UNALLOWABLE COSTS Determining 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 EXERCISE Small Company, Inc. Proposal for Technical Support Services Subcontracted 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 EXERCISE Small Company, Inc. Proposal for Technical Support Services Travel Cost What 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 EXERCISE Small Company, Inc. Proposal for Technical Support Services TRAVEL Cost Element Airfare Car Rental Lodging Incidentals Mileage Per Diem Schedule 4 #of Trips #of days 3 1 3 3 3 3 Cost n/a 2 3 3 n/a 3 Total 429 55 120 40 35 40 NOTES 1,287 1 105 2 360 3 120 4 35 5 120 5 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 company’s policies and procedures (policy should be in accordance with Federal Travel Regulations).

PREPARING FOR AN AUDIT Personnel Familiar Readily Available An Adequate Accounting System Detailed Schedules Used Available Data Related to the Proposed Costs (Supporting Documentation) Readily Available Provide the Proposal and Supporting Data in Electronic Format Financial Statements of the Company

COMMON DEFICIENCIES Lack of Supporting Data; No Basis of Estimate; Does Not Comply With RFP Instructions; Schedules Don’t Tie Into Summary Amounts; No Grand Total Summary; and Math Errors.

REFERENCES FAR PART 15 – Contracting By Negotiation FAR PART 31 – Contract Cost Principles OMB Circular A-122 – Cost Principles for Non-Profit Organizations Contract Pricing Guides DCAA – www.dcaa.mil FAI – http://www.acq.osd.mil/dpap/contractpricing/index.htm

QUESTIONS AND ANSWERS