SUBPART
215.4--CONTRACT PRICING
(Revised November 24, 2008)
215.402 Pricing policy.
215.403 Obtaining cost or pricing data.
215.403-1 Prohibition on obtaining cost or pricing data
215.403-3 Requiring information other than cost or
pricing data.
215.403-5 Instructions for submission of cost or pricing data or information other
than cost or pricing data.
215.404 Proposal analysis.
215.404-1 Proposal analysis techniques.
215.404-2 Information to support proposal analysis.
215.404-3 Subcontract pricing considerations.
215.404-4 Profit.
215.404-70 DD Form 1547, Record of Weighted Guidelines
Method Application.
215.404-71 Weighted guidelines method.
215.404-71-1 General.
215.404-71-2 Performance risk.
215.404-71-3 Contract type risk and working capital
adjustment.
215.404-71-4 Facilities capital employed.
215.404-71-5 Cost efficiency factor.
215.404-72 Modified weighted guidelines method for
nonprofit organizations other than FFRDCs.
215.404-73 Alternate structured approaches.
215.404-74 Fee requirements for cost-plus-award-fee
contracts.
215.404-75 Fee requirements for FFRDCs.
215.404-76 Reporting profit and fee statistics.
215.406-1 Prenegotiation objectives.
215.406-3 Documenting the negotiation.
215.407-2 Make-or-buy programs.
215.407-3 Forward pricing rate agreements.
215.407-4 Should-cost review.
215.407-5 Estimating systems.
215.407-5-70 Disclosure, maintenance, and review requirements.
215.408 Solicitation provisions and contract clauses.
215.470 Estimated data prices.
215.402 Pricing policy.
Follow the procedures at PGI 215.402
(Pop-up Window or PGI Viewer Mode) when conducting cost or price analysis, particularly with regard to
acquisitions for sole source commercial items.
215.403 Obtaining cost or pricing data.
215.403-1 Prohibition on obtaining cost or pricing data
(10
U.S.C. 2306a and 41 U.S.C. 254b).
(b) Exceptions
to cost or pricing data requirements.
Follow the procedures at PGI 215.403-1(b) (Pop-up Window or PGI Viewer Mode).
(c) Standards
for exceptions from cost or pricing data requirements.
(1) Adequate
price competition. For acquisitions
under dual or multiple source programs:
(A) The determination of adequate price
competition must be made on a case-by-case basis. Even when adequate price competition exists,
in certain cases it may be appropriate to obtain additional information to
assist in price analysis.
(B) Adequate price competition normally
exists when¾
(i)
Prices are solicited across a full range of step quantities, normally including
a 0-100 percent split, from at least two offerors that are individually capable
of producing the full quantity; and
(ii)
The reasonableness of all prices awarded is clearly established on the
basis of price analysis (see FAR 15.404-1(b)).
(3) Commercial items.
(A) Follow the procedures
at PGI 215.403-1(c)(3)(A)(Pop-up Window or PGI Viewer Mode) for pricing commercial items.
(B) By November 30th of each year, departments
and agencies shall provide a report to the Director, Defense Procurement and
Acquisition Policy (DPAP), ATTN: DPAP/CPF, of all contracting officer
determinations that commercial item exceptions apply under FAR 15.403-1(b)(3),
during the previous fiscal year, for any contract, subcontract, or modification
expected to have a value of $15,000,000 or more. See PGI 215.403-1(c)(3)(B)(Pop-up Window or PGI Viewer Mode) for the format and
guidance for the report. The Director,
DPAP, will submit a consolidated report to the congressional defense
committees.
(4) Waivers.
(A) The head of the contracting activity may,
without power of delegation, apply the exceptional circumstances authority when
a determination is made that—
(1)
The property or services cannot reasonably be obtained under the
contract, subcontract, or modification, without the granting of the waiver;
(2)
The price can be determined to be fair and reasonable without the
submission of certified cost or pricing data; and
(3)
There are demonstrated benefits to granting the waiver. Follow the
procedures at PGI 215.403-1(c)(4)(A) (Pop-up Window or PGI Viewer Mode) for determining when an exceptional case
waiver is appropriate, for approval of such waivers, for partial waivers, and
for waivers applicable to unpriced supplies or services.
(B) By November 30th of each year, departments
and agencies shall provide a report to the Director, DPAP, ATTN: DPAP/CPF, of
all waivers granted under FAR 15.403-1(b)(4), during the previous fiscal year,
for any contract, subcontract, or modification expected to have a value of
$15,000,000 or more. See PGI
215.403-1(c)(4)(B) (Pop-up Window or PGI Viewer Mode) for the format and guidance for the report. The Director, DPAP, will submit a
consolidated report to the congressional defense committees.
(C) DoD has waived the requirement for submission
of cost or pricing data for the Canadian Commercial Corporation and its
subcontractors.
(D) DoD has waived cost or pricing data
requirements for nonprofit organizations (including educational institutions)
on cost-reimbursement-no-fee contracts.
The contracting officer shall require¾
(1)
Submission of information other than cost or pricing data to the extent
necessary to determine price reasonableness and cost realism; and
(2) Cost or pricing data from subcontractors that
are not nonprofit organizations when the subcontractor’s proposal exceeds the
cost or pricing data threshold at FAR 15.403-4(a)(1).
215.403-3 Requiring information other than cost or
pricing data.
Follow the procedures at PGI
215.403-3 (Pop-up Window or PGI Viewer Mode).
215.403-5
Instructions for submission of cost or pricing data or information other
than cost or pricing data.
When the solicitation requires contractor compliance with the
Contractor Cost Data Reporting System, follow the procedures at PGI 215.403-5 (Pop-up Window or PGI Viewer Mode).
215.404
Proposal analysis.
215.404-1
Proposal analysis techniques.
(1) Follow the procedures at PGI 215.404-1 (Pop-up Window or PGI Viewer Mode) for proposal
analysis.
(2) For spare parts or support equipment, perform
an analysis of¾
(i) Those line items where the proposed price
exceeds by 25 percent or more the lowest price the Government has paid within
the most recent 12-month period based on reasonably available information;
(ii) Those line items where a comparison of the
item description and the proposed price indicates a potential for overpricing;
(iii) Significant high-dollar-value items. If there are no obvious high-dollar-value items,
include an analysis of a random sample of items; and
(iv) A random sample of the remaining low-dollar
value items. Sample size may be
determined by subjective judgment, e.g., experience with the offeror and the
reliability of its estimating and accounting systems.
215.404-2 Information to support proposal analysis.
See PGI 215.404-2 (Pop-up Window or PGI Viewer Mode) for guidance on obtaining field pricing or audit assistance.
215.404-3 Subcontract pricing considerations.
Follow the procedures at PGI 215.404-3 (Pop-up Window or PGI Viewer Mode) when reviewing a subcontractor’s
proposal.
215.404-4 Profit.
(b) Policy.
(1) Contracting officers shall use a structured
approach for developing a prenegotiation profit or fee objective on any
negotiated contract action when cost or pricing data is obtained, except for
cost-plus-award-fee contracts (see 215.404-74, 216.405-2, and FAR 16.405-2) or
contracts with Federally Funded Research and Development Centers (FFRDCs) (see
215.404-75). There are three structured
approaches¾
(A) The weighted guidelines method;
(B) The modified weighted guidelines method; and
(C) An alternate structured approach.
(c) Contracting
officer responsibilities.
(1) Also, do not perform a profit analysis when
assessing cost realism in competitive acquisitions.
(2) When using a structured approach, the
contracting officer—
(A) Shall use the weighted guidelines method (see
215.404-71), except as provided in paragraphs (c)(2)(B) and (c)(2)(C) of this
subsection.
(B) Shall use the modified weighted guidelines method
(see 215.404-72) on contract actions with nonprofit organizations other than
FFRDCs.
(C) May use an alternate structured approach (see
215.404-73) when¾
(1)
The contract action is¾
(i)
At or below the cost or pricing data threshold (see FAR 15.403-4(a)(1));
(ii)
For architect-engineer or construction work;
(iii)
Primarily for delivery of material from subcontractors; or
(iv)
A termination settlement; or
(2)
The weighted guidelines method does not produce a reasonable overall
profit objective and the head of the contracting activity approves use of the
alternate approach in writing.
(D) Shall use the weighted guidelines method to
establish a basic profit rate under a formula-type pricing agreement, and may
then use the basic rate on all actions under the agreement, provided that
conditions affecting profit do not change.
(E) Shall document the profit analysis in the
contract file.
(5) Although specific agreement on the applied
weights or values for individual profit factors shall not be attempted, the
contracting officer may encourage the contractor to¾
(A) Present the details of its proposed profit
amounts in the weighted guidelines format or similar structured approach; and
(B) Use the weighted guidelines method in
developing profit objectives for negotiated subcontracts.
(6) The contracting officer must also verify that
relevant variables have not materially changed (e.g., performance risk,
interest rates, progress payment rates, distribution of facilities capital).
(d) Profit-analysis
factors.
(1) Common
factors. The common factors are
embodied in the DoD structured approaches and need not be further considered by
the contracting officer.
215.404-70 DD Form 1547, Record of Weighted Guidelines
Method Application.
Follow the procedures at PGI 215.404-70 (Pop-up Window or PGI Viewer Mode) for use of DD Form 1547
whenever a structured approach to profit analysis is required.
215.404-71
Weighted guidelines method.
215.404-71-1
General.
(a) The weighted guidelines method focuses on
four profit factors—
(1) Performance risk;
(2) Contract type risk;
(3) Facilities capital employed; and
(4) Cost efficiency.
(b) The contracting officer assigns values to
each profit factor; the value multiplied by the base results in the profit
objective for that factor. Except for
the cost efficiency special factor, each profit factor has a normal value and a
designated range of values. The normal
value is representative of average conditions on the prospective contract when
compared to all goods and services acquired by DoD. The designated range provides values based on
above normal or below normal conditions.
In the price negotiation documentation, the contracting officer need not
explain assignment of the normal value, but should address conditions that
justify assignment of other than the normal value. The cost efficiency special factor has no
normal value. The contracting officer shall
exercise sound business judgment in selecting a value when this special factor
is used (see 215.404-71-5).
215.404-71-2 Performance risk.
(a) Description. This profit factor addresses the contractor's
degree of risk in fulfilling the contract requirements. The factor consists of two parts:
(1) Technical--the technical uncertainties of
performance.
(2) Management/cost control--the degree of
management effort necessary--
(i) To ensure that contract requirements are met;
and
(ii) To reduce and control costs.
(b) Determination. The following extract from the DD Form 1547
is annotated to describe the process.
|
|
Assigned |
Assigned |
Base |
Profit |
Item |
Contractor Risk Factors |
Weighting |
Value |
(Item 20) |
Objective |
21. |
Technical |
(1) |
(2) |
N/A |
N/A |
22. |
Management/ Cost Control |
(1) |
(2) |
N/A |
N/A |
23. |
Performance Risk (Composite) |
N/A |
(3) |
(4) |
(5) |
|
|
|
|
|
|
(1) Assign a weight (percentage) to each element
according to its input to the total performance risk. The total of the two weights equals 100
percent.
(2) Select a value for each element from the list
in paragraph (c) of this subsection using the evaluation criteria in paragraphs
(d) and (e) of this subsection.
(3) Compute the composite as shown in the
following example:
|
Assigned
Weighting |
Assigned
Value |
Weighted
Value |
|||||
Technical |
|
60% |
|
5.0% |
|
3.0% |
||
Management/ Cost Control |
|
40% |
|
4.0% |
|
1.6% |
||
|
|
|
|
|
|
|
||
Composite Value |
|
100% |
|
|
|
4.6% |
||
(4) Insert the amount from Block 20 of the DD Form
1547. Block 20 is total contract costs,
excluding facilities capital cost of money.
(5) Multiply (3) by (4).
(c) Values:
|
Normal
Value |
Designated
Range |
Standard |
5% |
3% to 7% |
Technology Incentive |
9% |
7% to 11% |
(1) Standard. The standard designated range should apply to
most contracts.
(2) Technology incentive. For the technical factor only, contracting
officers may use the technology incentive range for acquisitions that include
development, production, or application of innovative new technologies. The technology incentive range does not apply
to efforts restricted to studies, analyses, or demonstrations that have a
technical report as their primary deliverable.
(d) Evaluation
criteria for technical.
(1) Review the contract requirements and focus on
the critical performance elements in the statement of work or specifications. Factors to consider include—
(i) Technology being applied or developed by the
contractor;
(ii) Technical complexity;
(iii) Program maturity;
(iv) Performance specifications and tolerances;
(v) Delivery schedule; and
(vi) Extent of a warranty or guarantee.
(2) Above normal conditions.
(i) The contracting officer may assign a higher
than normal value in those cases where there is a substantial technical
risk. Indicators are—
(A) Items are being manufactured using
specifications with stringent tolerance limits;
(B) The efforts require highly skilled personnel
or require the use of state-of-the-art machinery;
(C) The services and analytical efforts are
extremely important to the Government and must be performed to exacting
standards;
(D) The contractor's independent development and
investment has reduced the Government's risk or cost;
(E) The contractor has accepted an accelerated
delivery schedule to meet DoD requirements; or
(F) The contractor has assumed additional risk through warranty provisions.
(ii) Extremely complex, vital efforts to overcome
difficult technical obstacles that require personnel with exceptional
abilities, experience, and professional credentials may justify a value
significantly above normal.
(iii) The following may justify a maximum value—
(A) Development or initial production of a new
item, particularly if performance or quality specifications are tight; or
(B) A high degree of development or production
concurrency.
(3) Below normal conditions.
(i) The contracting officer may assign a lower
than normal value in those cases where the technical risk is low. Indicators are—
(A) Requirements are relatively simple;
(B) Technology is not complex;
(C) Efforts do not require highly skilled
personnel;
(D) Efforts are routine;
(E) Programs are mature; or
(F) Acquisition is a follow-on effort or a
repetitive type acquisition.
(ii) The contracting officer may assign a value
significantly below normal for—
(A) Routine services;
(B) Production of simple items;
(C) Rote entry or routine integration of
Government-furnished information; or
(D) Simple operations with Government-furnished
property.
(4) Technology incentive range.
(i) The contracting officer may assign values
within the technology incentive range when contract performance includes the
introduction of new, significant technological innovation. Use the technology incentive range only for
the most innovative contract efforts.
Innovation may be in the form of--
(A) Development or application of new technology
that fundamentally changes the characteristics of an existing product or system
and that results in increased technical performance, improved reliability, or
reduced costs; or
(B) New products or systems that contain
significant technological advances over the products or systems they are
replacing.
(ii) When selecting a value within the technology
incentive range, the contracting officer should consider the relative value of
the proposed innovation to the acquisition as a whole. When the innovation represents a minor
benefit, the contracting officer should consider using values less than the
norm. For innovative efforts that will
have a major positive impact on the product or program, the contracting officer
may use values above the norm.
(e) Evaluation
criteria for management/cost control.
(1) The contracting officer should evaluate--
(i) The contractor's management and internal
control systems using contracting office information and reviews made by field
contract administration offices or other DoD field offices;
(ii) The management involvement expected on the
prospective contract action;
(iii) The degree of cost mix as an indication of
the types of resources applied and value added by the contractor;
(iv) The contractor's support of Federal
socioeconomic programs;
(v) The expected reliability of the contractor's
cost estimates (including the contractor's cost estimating system);
(vi) The adequacy of the contractor's management
approach to controlling cost and schedule; and
(vii) Any other factors that affect the
contractor's ability to meet the cost targets (e.g., foreign currency exchange
rates and inflation rates).
(2) Above normal conditions.
(i) The contracting officer may assign a higher
than normal value when there is a high degree of management effort. Indicators of this are—
(A)
The contractor's value added is both considerable and reasonably
difficult;
(B) The effort involves a high degree of
integration or coordination;
(C) The contractor has a good record of past
performance;
(D) The contractor has a substantial record of
active participation in Federal socioeconomic programs;
(E) The contractor provides fully documented and
reliable cost estimates;
(F) The contractor makes appropriate make-or-buy
decisions; or
(G) The contractor has a proven record of cost
tracking and control.
(ii) The contracting officer may justify a maximum
value when the effort—
(A) Requires large scale integration of the most
complex nature;
(B) Involves major international activities with
significant management coordination (e.g., offsets with foreign vendors); or
(C) Has critically important milestones.
(3) Below normal conditions.
(i) The contracting officer may assign a lower
than normal value when the management effort is minimal. Indicators of this are—
(A) The program is mature and many end item
deliveries have been made;
(B) The contractor adds minimal value to an item;
(C) The efforts are routine and require minimal
supervision;
(D) The contractor provides poor quality,
untimely proposals;
(E) The contractor fails to provide an adequate
analysis of subcontractor costs;
(F) The contractor does not cooperate in the
evaluation and negotiation of the proposal;
(G) The contractor's cost estimating system is
marginal;
(H) The contractor has made minimal effort to
initiate cost reduction programs;
(I) The contractor's cost proposal is inadequate;
(J) The contractor has a record of cost overruns
or another indication of unreliable cost estimates and lack of cost control; or
(K) The contractor has a poor record of past
performance.
(ii) The following may justify a value
significantly below normal—
(A) Reviews performed by the field contract
administration offices disclose unsatisfactory management and internal control
systems (e.g., quality assurance, property control, safety, security); or
(B) The effort requires an unusually low degree
of management involvement.
215.404-71-3 Contract type risk and working capital
adjustment.
(a) Description. The contract type risk factor focuses on the
degree of cost risk accepted by the contractor under varying contract
types. The working capital adjustment is
an adjustment added to the profit objective for contract type risk. It only applies to fixed-price contracts that
provide for progress payments. Though it
uses a formula approach, it is not intended to be an exact calculation of the
cost of working capital. Its purpose is
to give general recognition to the contractor's cost of working capital under
varying contract circumstances, financing policies, and the economic
environment.
(b) Determination. The following extract from the DD 1547 is
annotated to explain the process.
|
Contractor |
|
Assigned |
Base |
Profit |
Item |
Risk Factors |
|
Value |
(Item 20) |
Objective |
24. |
Contract Type Risk |
|
(1) |
(2) |
(3) |
|
|
Cost |
Length |
Interest |
|
|
|
Financed |
Factor |
Rate |
|
25. |
Working Capital (4) |
(5) |
(6) |
(7) |
(8) |
(1) Select a value from the list of contract
types in paragraph (c) of this subsection using the evaluation criteria in
paragraph (d) of this subsection.
(2) Insert the amount from Block 20, i.e., the
total allowable costs excluding facilities capital cost of money.
(3) Multiply (1) by (2).
(4) Only complete this block when the prospective
contract is a fixed-price contract containing provisions for progress payments.
(5) Insert the amount computed per paragraph (e)
of this subsection.
(6) Insert the appropriate figure from paragraph
(f) of this subsection.
(7) Use the interest rate established by the
Secretary of the Treasury (see http://www.treasurydirect.gov/govt/rates/tcir/tcir_opdirsemi.htm). Do
not use any other interest rate.
(8) Multiply (5) by (6) by (7). This is the working capital adjustment. It shall not exceed 4 percent of the contract
costs in Block 20.
(c) Values:
|
|
|
Designated |
||
Contract
Type |
Notes |
Value (percent) |
Range (percent) |
||
Firm-fixed-price, no financing |
(1) |
5 |
4 to 6. |
||
Firm-fixed-price, with performance-based payments |
(6) |
4 |
2.5 to 5.5. |
||
Firm-fixed-price, with progress payments |
(2) |
3 |
2 to 4. |
||
|
|
|
|
||
Fixed-price incentive, no financing |
(1) |
3 |
2 to 4. |
||
Fixed-price incentive, with performance-based payments |
(6) |
2 |
0.5 to 3.5. |
||
Fixed-price with redetermination provision |
(3) |
|
|
||
Fixed-price incentive, with progress payments |
(2) |
1 |
0 to 2. |
||
|
|
|
|
||
Cost-plus-incentive-fee |
(4) |
1 |
0 to 2. |
||
Cost-plus-fixed-fee |
(4) |
|
.5 |
|
0 to 1. |
Time-and-materials (including overhaul
contracts priced on time-and-materials basis) |
(5) |
|
.5 |
|
0 to 1. |
|
|
|
|
|
|
Labor-hour |
(5) |
|
.5 |
|
0 to 1. |
Firm-fixed-price, level-of-effort |
(5) |
|
.5 |
|
0 to 1. |
(1) “No financing” means either that the contract
does not provide progress payments or performance-based payments, or that the
contract provides them only on a limited basis, such as financing of first
articles. Do not compute a working
capital adjustment.
(2) When the contract contains provisions for progress
payments, compute a working capital adjustment (Block 25).
(3) For the purposes of assigning profit values,
treat a fixed-price contract with redetermination provisions as if it were a
fixed-price incentive contract with below normal conditions.
(4) Cost-plus contracts shall not receive the
working capital adjustment.
(5) These types of contracts are considered
cost-plus-fixed-fee contracts for the purposes of assigning profit values. They shall not receive the working capital
adjustment in Block 25. However, they
may receive higher than normal values within the designated range to the extent
that portions of cost are fixed.
(6) When the contract contains provisions for
performance-based payments, do not compute a working capital adjustment.
(d) Evaluation
criteria.
(1) General. The contracting officer should consider
elements that affect contract type risk such as—
(i) Length of contract;
(ii) Adequacy of cost data for projections;
(iii) Economic environment;
(iv) Nature and extent of subcontracted activity;
(v) Protection provided to the contractor under
contract provisions (e.g., economic price adjustment clauses);
(vi) The ceilings and share lines contained in
incentive provisions;
(vii) Risks associated with contracts for foreign
military sales (FMS) that are not funded by
(viii) When the contract contains provisions for
performance-based payments—
(A) The frequency of payments;
(B) The total amount of payments compared to the
maximum allowable amount specified at FAR 32.1004(b)(2); and
(C) The risk of the payment schedule to the
contractor.
(2) Mandatory. The contracting officer shall assess the
extent to which costs have been incurred prior to definitization of the
contract action (also see 217.7404-6(a)).
The assessment shall include any
reduced contractor risk on both the contract before definitization and the
remaining portion of the contract. When
costs have been incurred prior to definitization, generally regard the contract
type risk to be in the low end of the designated range. If a substantial portion of the costs have
been incurred prior to definitization, the contracting officer may assign a
value as low as 0 percent, regardless of contract type.
(3) Above normal conditions. The contracting officer may assign a higher
than normal value when there is substantial contract type risk. Indicators of this are—
(i) Efforts where there is minimal cost history;
(ii) Long-term contracts without provisions
protecting the contractor, particularly when there is considerable economic
uncertainty;
(iii) Incentive provisions (e.g., cost and
performance incentives) that place a high degree of risk on the contractor;
(iv)
FMS sales (other than those under DoD cooperative logistics support
arrangements or those made from U.S. Government inventories or stocks) where
the contractor can demonstrate that there are substantial risks above those
normally present in DoD contracts for similar items; or
(v) An aggressive performance-based payment
schedule that increases risk.
(4) Below normal conditions. The contracting officer may assign a lower
than normal value when the contract type risk is low. Indicators of this are—
(i) Very mature product line with extensive cost
history;
(ii) Relatively short-term contracts;
(iii) Contractual provisions that substantially
reduce the contractor's risk;
(iv) Incentive provisions that place a low degree
of risk on the contractor;
(v) Performance-based payments totaling the
maximum allowable amount(s) specified at FAR 32.1004(b)(2); or
(vi) A performance-based payment schedule that is
routine with minimal risk.
(e) Costs
financed.
(1) Costs financed equal total costs multiplied
by the portion (percent) of costs financed by the contractor.
(2) Total costs equal Block 20 (i.e., all
allowable costs excluding facilities capital cost of money), reduced as
appropriate when—
(i) The contractor has little cash investment
(e.g., subcontractor progress payments liquidated late in period of
performance);
(ii) Some costs are covered by special financing
provisions, such as advance payments; or
(iii) The contract is multiyear and there are
special funding arrangements.
(3) The portion that the contractor finances is
generally the portion not covered by progress payments, i.e., 100 percent minus
the customary progress payment rate (see FAR 32.501). For example, if a contractor receives progress
payments at 80 percent, the portion that the contractor finances is 20
percent. On contracts that provide
progress payments to small businesses, use the customary progress payment rate
for large businesses.
(f)
Contract length factor.
(1) This is the period of time that the
contractor has a working capital investment in the contract. It—
(i) Is based on the time necessary for the
contractor to complete the substantive portion of the work;
(ii) Is not necessarily the period of time between
contract award and final delivery (or final payment), as periods of minimal
effort should be excluded;
(iii) Should not include periods of performance
contained in option provisions; and
(iv) Should not, for multiyear contracts, include
periods of performance beyond that required to complete the initial program
year's requirements.
(2) The contracting officer—
(i) Should use the following table to select the
contract length factor;
(ii) Should develop a weighted average contract
length when the contract has multiple deliveries; and
(iii) May use sampling techniques provided they
produce a representative result.
TABLE |
||||||
Period
to Perform Substantive |
Contract
Length |
|||||
Portion
(in months) |
Factor |
|||||
|
21 or less |
|
|
.40 |
|
|
|
22 to 27 |
|
|
.65 |
|
|
|
28 to 33 |
|
|
.90 |
|
|
|
34 to 39 |
|
|
1.15 |
|
|
|
40 to 45 |
|
|
1.40 |
|
|
|
46 to 51 |
|
|
1.65 |
|
|
|
52 to 57 |
|
|
1.90 |
|
|
|
58 to 63 |
|
|
2.15 |
|
|
|
64 to 69 |
|
|
2.40 |
|
|
|
70 to 75 |
|
|
2.65 |
|
|
|
76 or more |
|
2.90 |
|
||
(3) Example:
A prospective contract has a performance period of 40 months with end
items being delivered in the 34th, 36th, 38th, and 40th months of the
contract. The average period is 37
months and the contract length factor is 1.15.
215.404-71-4
Facilities capital employed.
(a) Description. This factor focuses on encouraging and
rewarding capital investment in facilities that benefit DoD. It recognizes both the facilities capital
that the contractor will employ in contract performance and the contractor's
commitment to improving productivity.
(b) Contract
facilities capital estimates. The
contracting officer shall estimate the facilities capital cost of money and
capital employed using—
(1) An analysis of the appropriate Forms CASB-CMF
and cost of money factors (48 CFR 9904.414 and FAR 31.205-10); and
(2) DD Form 1861, Contract Facilities Capital
Cost of Money.
(c) Use of
DD Form 1861. See PGI
215.404-71-4(c) (Pop-up Window or PGI Viewer Mode) for obtaining field pricing support for preparing DD Form 1861.
(1) Purpose. The DD Form 1861 provides a means of linking
the Form CASB-CMF and DD Form 1547, Record of Weighted Guidelines
Application. It—
(i) Enables the
contracting officer to differentiate profit objectives for various types of
assets (land, buildings, equipment). The
procedure is similar to applying overhead rates to appropriate overhead
allocation bases to determine contract overhead costs.
(ii) Is designed
to record and compute the contract facilities capital cost of money and capital
employed which is carried forward to DD Form 1547.
(2) Completion
instructions. Complete a DD Form
1861 only after evaluating the contractor's cost proposal, establishing cost of
money factors, and establishing a prenegotiation objective on cost. Complete the form as follows:
(i) List
overhead pools and direct-charging service centers (if used) in the same
structure as they appear on the contractor's cost proposal and Form
CASB-CMF. The structure and allocation
base units-of-measure must be compatible on all three displays.
(ii) Extract
appropriate contract overhead allocation base data, by year, from the evaluated
cost breakdown or prenegotiation cost objective and list against each overhead
pool and direct-charging service center.
(iii) Multiply
each allocation base by its corresponding cost of money factor to get the
facilities capital cost of money estimated to be incurred each year. The sum of these products represents the
estimated contract facilities capital cost of money for the year's effort.
(iv) Total
contract facilities cost of money is the sum of the yearly amounts.
(v) Since the
facilities capital cost of money factors reflect the applicable cost of money
rate in Column 1 of Form CASB-CMF, divide the contract cost of money by that
same rate to determine the contract facilities capital employed.
(d) Preaward
facilities capital applications. To
establish cost and price objectives, apply the facilities capital cost of money
and capital employed as follows:
(1) Cost of Money.
(i)
Cost Objective. Use the
imputed facilities capital cost of money, with normal, booked costs, to
establish a cost objective or the target cost when structuring an incentive
type contract. Do not adjust target
costs established at the outset even though actual cost of money rates become
available during the period of contract performance.
(ii)
Profit Objective. When
measuring the contractor's effort for the purpose of establishing a
prenegotiation profit objective, restrict the cost base to normal, booked
costs. Do not include cost of money as
part of the cost base.
(2) Facilities Capital Employed. Assess and weight the profit objective for
risk associated with facilities capital employed in accordance with the profit
guidelines at 215.404-71-4.
(e) Determination. The following extract from the DD Form 1547
has been annotated to explain the process.
Item |
Contractor
Facilities Capital Employed |
Assigned
Value |
Amount
Employed |
Profit
Objective |
26. |
Land |
N/A |
(2) |
N/A |
27. |
Buildings |
N/A |
(2) |
N/A |
28. |
Equipment |
(1) |
(2) |
(3) |
(1) Select a value from the list in paragraph (f)
of this subsection using the evaluation criteria in paragraph (g) of this
subsection.
(2) Use the allocated facilities capital
attributable to land, buildings, and equipment, as derived in DD Form 1861,
Contract Facilities Capital Cost of Money.
(i) In addition to the net book value of
facilities capital employed, consider facilities capital that is part of a
formal investment plan if the contractor submits reasonable evidence that—
(A) Achievable benefits to DoD will result from
the investment; and
(B) The benefits of the investment are included
in the forward pricing structure.
(ii) If the value of intracompany transfers has
been included in Block 20 at cost (i.e., excluding general and administrative (G&A)
expenses and profit), add to the contractor's allocated facilities capital, the
allocated facilities capital attributable to the buildings and equipment of
those corporate divisions supplying the intracompany transfers. Do not make this addition if the value of
intracompany transfers has been included in Block 20 at price (i.e., including
G&A expenses and profit).
(3) Multiply (1) by (2).
(f) Values:
Asset Type |
Normal Value |
Designated Range |
Land |
0% |
N/A |
Buildings |
0% |
N/A |
Equipment |
17.5% |
10% to 25% |
(g) Evaluation
criteria.
(1) In evaluating facilities capital employed,
the contracting officer—
(i) Should relate the usefulness of the
facilities capital to the goods or services being acquired under the
prospective contract;
(ii) Should analyze the productivity improvements
and other anticipated industrial base enhancing benefits resulting from the
facilities capital investment, including—
(A) The economic value of the facilities capital,
such as physical age, undepreciated value, idleness, and expected contribution
to future defense needs; and
(B) The contractor's level of investment in
defense related facilities as compared with the portion of the contractor's
total business that is derived from DoD; and
(iii) Should consider any contractual provisions
that reduce the contractor's risk of investment recovery, such as termination
protection clauses and capital investment indemnification.
(2) Above normal conditions.
(i) The contracting officer may assign a higher
than normal value if the facilities capital investment has direct,
identifiable, and exceptional benefits.
Indicators are—
(A) New investments in state-of-the-art
technology that reduce acquisition cost or yield other tangible benefits such
as improved product quality or accelerated deliveries; or
(B) Investments in new equipment for research and
development applications.
(ii) The contracting officer may assign a value
significantly above normal when there are direct and measurable benefits in
efficiency and significantly reduced acquisition costs on the effort being
priced. Maximum values apply only to
those cases where the benefits of the facilities capital investment are
substantially above normal.
(3) Below normal conditions.
(i) The contracting officer may assign a lower
than normal value if the facilities capital investment has little benefit to
DoD. Indicators are—
(A) Allocations of capital apply predominantly to
commercial item lines;
(B) Investments are for such things as furniture
and fixtures, home or group level administrative offices, corporate aircraft
and hangars, gymnasiums; or
(C) Facilities are old or extensively idle.
(ii) The contracting officer may assign a value
significantly below normal when a significant portion of defense manufacturing
is done in an environment characterized by outdated, inefficient, and
labor-intensive capital equipment.
215.404-71-5 Cost efficiency factor.
(a)
This special factor provides an incentive for contractors to reduce
costs. To the extent that the contractor
can demonstrate cost reduction efforts that benefit the pending contract, the
contracting officer may increase the prenegotiation profit objective by an amount
not to exceed 4 percent of total objective cost (Block 20 of the DD Form 1547)
to recognize these efforts (Block 29).
(b) To determine if using this factor is
appropriate, the contracting officer shall consider criteria, such as the
following, to evaluate the benefit the contractor’s cost reduction efforts will
have on the pending contract:
(1) The contractor’s participation in Single
Process Initiative improvements;
(2) Actual cost reductions achieved on prior
contracts;
(3) Reduction or elimination of excess or idle
facilities;
(4) The contractor’s cost reduction initiatives
(e.g., competition advocacy programs, technical insertion programs, obsolete
parts control programs, spare parts pricing reform, value engineering,
outsourcing of functions such as information technology). Metrics developed by the contractor such as
fully loaded labor hours (i.e., cost per labor hour, including all direct and
indirect costs) or other productivity measures may provide the basis for
assessing the effectiveness of the contractor’s cost reduction initiatives over
time;
(5) The contractor’s adoption of process
improvements to reduce costs;
(6) Subcontractor cost reduction efforts;
(7) The contractor’s effective incorporation of
commercial items and processes; or
(8) The contractor’s investment in new facilities
when such investments contribute to better asset utilization or improved
productivity.
(c) When selecting the percentage to use for this
special factor, the contracting officer has maximum flexibility in determining
the best way to evaluate the benefit the contractor’s cost reduction efforts
will have on the pending contract.
However, the contracting officer shall consider the impact that quantity
differences, learning, changes in scope, and economic factors such as inflation
and deflation will have on cost reduction.
215.404-72 Modified weighted guidelines method for
nonprofit organizations other than FFRDCs.
(a) Definition. As used in this subpart, a nonprofit
organization is a business entity—
(1) That operates exclusively for charitable,
scientific, or educational purposes;
(2) Whose earnings do not benefit any private
shareholder or individual;
(3) Whose activities do not involve influencing
legislation or political campaigning for any candidate for public office; and
(4) That is exempted from Federal income taxation
under section 501 of the Internal Revenue Code.
(b) For nonprofit organizations that are entities
that have been identified by the Secretary of Defense or a Secretary of a
Department as receiving sustaining support on a cost-plus-fixed-fee basis from
a particular DoD department or agency, compute a fee objective for covered
actions using the weighted guidelines method in 215.404-71, with the following
modifications:
(1) Modifications
to performance risk (Blocks 21-23 of the DD Form 1547).
(i) If the contracting officer assigns a value
from the standard designated range (see 215.404-71-2(c)), reduce the fee
objective by an amount equal to 1 percent of the costs in Block 20 of the DD
Form 1547. Show the net (reduced) amount
on the DD Form 1547.
(ii) Do not assign a value from the technology
incentive designated range.
(2) Modifications
to contract type risk (Block 24 of the DD Form 1547). Use a designated range of –1 percent to 0
percent instead of the values in 215.404-71-3.
There is no normal value.
(c) For all other nonprofit organizations except
FFRDCs, compute a fee objective for covered actions using the weighted guidelines
method in 215.404-71, modified as described in paragraph (b)(1) of this
subsection.
215.404-73 Alternate structured approaches.
(a) The contracting officer may use an alternate
structured approach under 215.404-4(c).
(b) The contracting officer may design the
structure of the alternate, but it shall include—
(1) Consideration of the three basic components
of profit--performance risk, contract type risk (including working capital),
and facilities capital employed.
However, the contracting officer is not required to complete Blocks 21
through 30 of the DD Form 1547.
(2) Offset for facilities capital cost of money.
(i) The contracting officer shall reduce the
overall prenegotiation profit objective by the amount of facilities capital
cost of money under Cost Accounting Standard (CAS) 414, Cost of Money as an
Element of the Cost of Facilities Capital (48 CFR 9904.414). Cost of money under CAS 417, Cost of Money as
an Element of the Cost of Capital Assets Under Construction (48 CFR 9904.417),
should not be used to reduce the overall prenegotiation profit objective. The profit amount in the negotiation summary
of the DD Form 1547 must be net of the offset.
(ii) This adjustment is needed for the following
reason: The values of the profit factors
used in the weighted guidelines method were adjusted to recognize the shift in
facilities capital cost of money from an element of profit to an element of
contract cost (see FAR 31.205-10) and reductions were made directly to the profit
factors for performance risk. In order
to ensure that this policy is applied to all DoD contracts that allow
facilities capital cost of money, similar adjustments shall be made to
contracts that use alternate structured approaches.
215.404-74 Fee requirements for cost-plus-award-fee
contracts.
In developing a fee objective for cost-plus-award-fee contracts, the
contracting officer shall—
(a) Follow the guidance in FAR 16.405-2 and
216.405-2;
(b) Not use the weighted guidelines method or
alternate structured approach;
(c) Apply the offset policy in 215.404-73(b)(2)
for facilities capital cost of money, i.e., reduce the base fee by the amount
of facilities capital cost of money; and
(d) Not complete a DD Form 1547.
215.404-75
Fee requirements for FFRDCs.
For
nonprofit organizations that are FFRDCs, the contracting officer—
(a) Should consider whether any fee is
appropriate. Considerations shall
include the FFRDC’s—
(1) Proportion of retained earnings (as
established under generally accepted accounting methods) that relates to DoD
contracted effort;
(2) Facilities capital acquisition plans;
(3) Working capital funding as assessed on
operating cycle cash needs; and
(4) Provision for funding unreimbursed costs
deemed ordinary and necessary to the FFRDC.
(b) Shall, when a fee is considered appropriate,
establish the fee objective in accordance with FFRDC fee policies in the DoD
FFRDC Management Plan.
(c) Shall not use the weighted guidelines method
or an alternate structured approach.
215.404-76
Reporting profit and fee statistics.
Follow
the procedures at PGI 215.404-76 (Pop-up Window or PGI Viewer Mode) for reporting profit and fee statistics.
215.406-1 Prenegotiation objectives.
Follow
the procedures at PGI 215.406-1 (Pop-up Window or PGI Viewer Mode) for establishing prenegotiation objectives.
215.406-3 Documenting the negotiation.
Follow
the procedures at PGI 215.406-3 (Pop-up Window or PGI Viewer Mode) for documenting the negotiation.
215.407-2 Make-or-buy programs.
(e) Program
requirements.
(1) Items
and work included. The minimum
dollar amount is $1 million.
215.407-3
Forward pricing rate agreements.
(b)(i) Use forward pricing rate agreement (FPRA)
rates when such rates are available, unless waived on a case-by-case basis by
the head of the contracting activity.
(ii) Advise the ACO of each case waived.
(iii) Contact the ACO for questions on FPRAs or
recommended rates.
215.407-4
Should-cost review.
See
PGI 215.407-4 (Pop-up Window or PGI Viewer Mode) for guidance on determining whether to perform a program or
overhead should-cost review.
215.407-5 Estimating systems.
215.407-5-70
Disclosure, maintenance, and review requirements.
(a)
Definitions.
(1) “Acceptable estimating system” is defined in
the clause at 252.215-7002, Cost Estimating System Requirements.
(2) “Contractor” means a business unit as defined
in FAR 2.101.
(3) “Estimating system” is as defined in the
clause at 252.215-7002, Cost Estimating System Requirements.
(4) “Significant estimating system deficiency”
means a shortcoming in the estimating system that is likely to consistently
result in proposal estimates for total cost or a major cost element(s) that do
not provide an acceptable basis for negotiation of fair and reasonable prices.
(b) Applicability.
(1) DoD policy is that all contractors have acceptable
estimating systems that consistently produce well-supported proposals that are
acceptable as a basis for negotiation of fair and reasonable prices.
(2) A large business contractor is subject to
estimating system disclosure, maintenance, and review requirements if—
(i)
In its preceding fiscal year, the contractor received DoD prime
contracts or subcontracts totaling $50 million or more for which cost or
pricing data were required; or
(ii) In its preceding fiscal year, the contractor
received DoD prime contracts or subcontracts totaling $10 million or more (but
less than $50 million) for which cost or pricing data were required and the
contracting officer, with concurrence or at the request of the ACO, determines
it to be in the best interest of the Government (e.g., significant estimating
problems are believed to exist or the contractor's sales are predominantly
Government).
(c)
Responsibilities.
(1) The contracting officer shall—
(i) Through use of the clause at 252.215-7002,
Cost Estimating System Requirements, apply the disclosure, maintenance, and
review requirements to large business contractors meeting the criteria in
paragraph (b)(2)(i) of this subsection;
(ii) Consider whether to apply the disclosure,
maintenance, and review requirements to large business contractors under
paragraph (b)(2)(ii) of this subsection; and
(iii) Not apply the disclosure, maintenance, and
review requirements to other than large business contractors.
(2) The cognizant ACO, for contractors subject to
paragraph (b)(2) of this subsection, shall—
(i) Determine the acceptability of the disclosure
and system; and
(ii) Pursue correction of any deficiencies.
(3) The cognizant auditor, on behalf of the ACO,
serves as team leader in conducting estimating system reviews.
(4) A contractor subject to estimating system
disclosure, maintenance, and review requirements shall—
(i) Maintain an acceptable system;
(ii) Describe its system to the ACO;
(iii) Provide timely notice of changes in the
system; and
(iv) Correct system deficiencies identified by the
ACO.
(d) Characteristics
of an acceptable estimating system.
(1) General. An acceptable system should provide for the
use of appropriate source data, utilize sound estimating techniques and good
judgment, maintain a consistent approach, and adhere to established policies
and procedures.
(2) Evaluation. In evaluating the acceptability of a
contractor's estimating system, the ACO should consider whether the
contractor's estimating system, for example—
(i) Establishes clear responsibility for
preparation, review, and approval of cost estimates;
(ii) Provides a written description of the
organization and duties of the personnel responsible for preparing, reviewing,
and approving cost estimates;
(iii) Assures that relevant personnel have
sufficient training, experience, and guidance to perform estimating tasks in
accordance with the contractor's established procedures;
(iv) Identifies the sources of data and the estimating
methods and rationale used in developing cost estimates;
(v) Provides for appropriate supervision
throughout the estimating process;
(vi) Provides for consistent application of
estimating techniques;
(vii) Provides for detection and timely correction
of errors;
(viii) Protects against cost duplication and
omissions;
(ix) Provides for the use of historical
experience, including historical vendor pricing information, where appropriate;
(x) Requires use of appropriate analytical
methods;
(xi) Integrates information available from other
management systems, where appropriate;
(xii) Requires management review including
verification that the company's estimating policies, procedures, and practices
comply with this regulation;
(xiii) Provides for internal review of and
accountability for the acceptability of the estimating system, including the
comparison of projected results to actual results and an analysis of any
differences;
(xiv) Provides procedures to update cost estimates
in a timely manner throughout the negotiation process; and
(xv) Addresses responsibility for review and
analysis of the reasonableness of subcontract prices.
(3) Indicators of potentially significant
estimating deficiencies. The
following examples indicate conditions that may produce or lead to significant
estimating deficiencies—
(i) Failure to ensure that historical experience
is available to and utilized by cost estimators, where appropriate;
(ii) Continuing failure to analyze material costs
or failure to perform subcontractor cost reviews as required;
(iii) Consistent absence of analytical support for
significant proposed cost amounts;
(iv) Excessive reliance on individual personal
judgment where historical experience or commonly utilized standards are
available;
(v) Recurring significant defective pricing
findings within the same cost element(s);
(vi) Failure to integrate relevant parts of other
management systems (e.g., production control or cost accounting) with the
estimating system so that the ability to generate reliable cost estimates is
impaired; and
(vii) Failure to provide established policies,
procedures, and practices to persons responsible for preparing and supporting
estimates.
(e) Review
procedures. Follow the procedures at
PGI 215.407-5-70(e) (Pop-up Window or PGI Viewer Mode) for establishing and conducting estimating system reviews.
(f) Disposition
of survey team findings. Follow the
procedures at PGI 215.407-5-70(f) (Pop-up Window or PGI Viewer Mode) for disposition of the survey team findings.
(g) Impact
of estimating system deficiencies on specific proposals.
(1) Field pricing teams will discuss identified
estimating system deficiencies and their impact in all reports on contractor
proposals until the deficiencies are resolved.
(2) The contracting officer responsible for
negotiation of a proposal generated by an estimating system with an identified
deficiency shall evaluate whether the deficiency impacts the negotiations. If it does not, the contracting officer
should proceed with negotiations. If it
does, the contracting officer should consider other alternatives, e.g.—
(i) Allowing the contractor additional time to
correct the estimating system deficiency and submit a corrected proposal;
(ii) Considering another type of contract, e.g.,
FPIF instead of FFP;
(iii) Using additional cost analysis techniques to
determine the reasonableness of the cost elements affected by the system's
deficiency;
(iv) Segregating the questionable areas as a cost
reimbursable line item;
(v) Reducing the negotiation objective for profit
or fee; or
(vi) Including a contract (reopener) clause that
provides for adjustment of the contract amount after award.
(3) The contracting officer who incorporates a
reopener clause into the contract is responsible for negotiating price
adjustments required by the clause. Any
reopener clause necessitated by an estimating deficiency should—
(i) Clearly identify the amounts and items that
are in question at the time of negotiation;
(ii) Indicate a specific time or subsequent event
by which the contractor will submit a supplemental proposal, including cost or
pricing data, identifying the cost impact adjustment necessitated by the
deficient estimating system;
(iii) Provide for the contracting officer to
unilaterally adjust the contract price if the contractor fails to submit the
supplemental proposal; and
(iv) Provide that failure of the Government and
the contractor to agree to the price adjustment shall be a dispute under the
Disputes clause.
215.408
Solicitation provisions and contract clauses.
(1) Use the clause at 252.215-7000, Pricing
Adjustments, in solicitations and contracts that contain the clause at¾
(i) FAR 52.215-11, Price Reduction for Defective
Cost or Pricing Data--Modifications;
(ii) FAR 52.215-12, Subcontractor Cost or Pricing
Data; or
(iii) FAR 52.215-13, Subcontractor Cost or Pricing
Data--Modifications.
(2) Use the clause at 252.215-7002, Cost
Estimating System Requirements, in all solicitations and contracts to be
awarded on the basis of cost or pricing data.
(3)
Use the provision at 252.215-7003, Excessive Pass-Through Charges - Identification
of Subcontract Effort, in solicitations (including task or delivery orders)—
(i) With a total value that exceeds the threshold
for obtaining cost or pricing data in accordance with FAR 15.403-4, except when
the resulting contract is expected to be—
(A) A firm-fixed-price contract awarded on the
basis of adequate price competition;
(B) A fixed-price contract with economic price
adjustment, awarded on the basis of adequate price competition;
(C) A firm-fixed-price contract for the
acquisition of a commercial item; or
(D) A fixed-price contract with economic price
adjustment, for the acquisition of a commercial item; or
(ii) With a total value at or below the threshold
for obtaining cost or pricing data in accordance with FAR 15.403-4, when the
contracting officer determines that inclusion of the provision is appropriate.
(4)(i)
Use the clause at 252.215-7004, Excessive Pass-Through Charges, in
solicitations and contracts (including task or delivery orders)—
(A) With a total value that exceeds the threshold
for obtaining cost or pricing data in accordance with FAR 15.403-4, except for—
(1)
Firm-fixed-price contracts awarded on the basis of adequate price
competition;
(2) Fixed-price contracts with economic price
adjustment, awarded on the basis of adequate price competition;
(3) Firm-fixed-price contracts for the
acquisition of a commercial item; or
(4) Fixed-price contracts with economic price
adjustment, for the acquisition of a commercial item; or
(B) With a total value at or below the threshold
for obtaining cost or pricing data in accordance with FAR 15.403-4, when the
contracting officer determines that inclusion of the clause is appropriate.
(ii) Use the clause with its Alternate I when the contracting
officer determines that the prospective contractor has demonstrated that its
functions provide added value to the contracting effort and there are no
excessive pass-through charges.
215.470 Estimated data prices.
(a) DoD requires estimates of the prices of data
in order to evaluate the cost to the Government of data items in terms of their
management, product, or engineering value.
(b) When data are required to be delivered under
a contract, include DD Form 1423, Contract Data Requirements List, in the
solicitation. See PGI 215.470(b) (Pop-up Window or PGI Viewer Mode) for
guidance on the use of DD Form 1423.
(c) The contracting officer shall ensure that the
contract does not include a requirement for data that the contractor has
delivered or is obligated to deliver to the Government under another contract
or subcontract, and that the successful offeror identifies any such data
required by the solicitation. However,
where duplicate data are desired, the contract price shall include the costs of
duplication, but not of preparation, of such data.