PREPARING A COST PROPOSAL

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PREPARING COST PROPOSALS
Tangela Williams, CPASr. Cost/Price AnalystCost
and Price Analysis Branch
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TOPICS

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

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VITAL ELEMENTS OF A PROPOSAL

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

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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).

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PROPOSAL EXAMPLES
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SAMPLE PROPOSALXYZ Technologies,
Inc.Washington, DCProposal Submitted in
Response to RFP IRS-Show-Me-The -Money
ELEMENT OF COST AMOUNT REFERENCE Eng
ineering Labor 400,000 Schedule 1 Production
Labor 30,000 Schedule 1 Direct Labor
Overhead_at_60.0 25,800 Schedule
2 Material 110,000 Schedule 3 Material
Handling Overhead_at_5.0 55,000 Schedule
4 Subtotal 620,800 GA _at_8.0
49,664 Schedule 5 Estimated Cost
670,464 Profit _at_10.0 67,046 Total
Price 737,510
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SAMPLE PROPOSALXYZ Technologies,
Inc.Washington, DCProposal Submitted in
Response to RFP IRS-Show-Me-The -Money

• Engineering Labor Cost SCHEDULE 1
• Labor Category Rate Hours Total
• Program Manager 40.00 1,000 40,000
• Sr. Engineer 28.00 9,000 252,000
• Jr. Engineer 24.00 4,500 108,000
• Total Eng Labor 400,000
• Production Labor Cost
• Labor Category Rate Hours Total
• Fabrication 10.00 2,000 20,000
• Assembly 8.00 1,250 10,000
• Total Production Labor 30,000

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SAMPLE RFP COST PROPOSAL

• MAINTENANCE
• SUPPORT
• CONTRACT
• SEE HANDOUT

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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?

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PROPOSAL EXERCISESmall Company, Inc.Proposal
for Technical Support Services

• Proposed Reference
• Technical Labor 75,000 Schedule 1
• Labor Overhead 39,937 Schedule 2
• Subtotal 114,937
• Subcontract Service 72,000 Schedule 3
• Travel 3,000 Schedule 4
• Total Cost Input 189,937
• GA 54,004 Schedule 2
• Total Cost 243,941
• Profit 24,394
• Total Price 268,335

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PROPOSAL EXERCISESmall 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.

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PROPOSAL EXERCISESmall Company, Inc.Proposal
for Technical Support Services

• Schedule 1
• Hours Rate Amount
• Technical 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.

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PROPOSAL EXERCISESmall Company, Inc.Proposal
for Technical Support Services

• Schedule 2
• FY 2009 Budget
• Direct
• Total Cost Overhead GA
  Unallowable
• Admin Labor 20,000 5,000 15,000
• Depreciation 2,000 2,000
• Fringe Benefits 5,000 4,000 1,000
• Interest 8,000 8,000
• Office Supplies 5,000 5,000
• Tech Labor 150,000 150,000
• Rent 10,000 10,000
• Travel 5,000 3,000 2,000
• Telephone 1,000 1,000
• Payroll Taxes 6,000 6,000
• Subcontracts 72,000 72,000
• Miscellaneous 60,000 45,000 14,000
  1,000
• Total 344,000 225,000 80,000 30,000
  9,000

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PROPOSAL EXERCISESmall Company, Inc.Proposal
for Technical Support Services

• Overhead Rate Calculation Schedule 2
• Overhead Pool 80,000
• 53.33
• Direct Labor 150,000
• GA Rate Calculation
• GA Pool 30,000
• 9.84
• Total Cost Input 305,000

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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.

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PROPOSAL EXERCISESmall 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.

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PROPOSAL EXERCISESmall 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?

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PROPOSAL EXERCISESmall Company, Inc.Proposal
for Technical Support Services

• TRAVEL Schedule 4
• Cost Element of Trips of days Cost
  Total NOTES
• Airfare 3 n/a 429 1,287 1
• Car Rental 1 2 55 105 2
• Lodging 3 3 120 360 3
• Incidentals 3 3 40 120 4
• Mileage 3 n/a 35 35 5
• Per Diem 3 3 40 120 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 companys policies and procedures
  (policy should be in accordance with Federal
  Travel Regulations).

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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

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COMMON DEFICIENCIES

• Lack of Supporting Data
• No Basis of Estimate
• Does Not Comply With RFP Instructions
• Schedules Dont Tie Into Summary Amounts
• No Grand Total Summary and
• Math Errors.

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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

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QUESTIONS AND ANSWERS