cost estimate | The Contracting Education Academy

October 17, 2013 By AMK

GAO critical of how DoD estimates insourcing cost

The way the Defense Department estimates the cost of insourcing contractor positions to government employees has come under new criticism from the Government Accountability Office.

Whether government employees or private contractors ultimately cost the government less has long been a subject of debate, and past attempts to settle the matter have faced scrutiny for flaws in their methods and assumptions.

According to a GAO report dated Sept. 25, the department’s instructions say to estimate the cost of overhead for insourced employees by using a standard rate of 12 percent of labor costs. But the GAO and the department’s office of inspector general have both said that rate has no sound basis.

Until officials can determine a more meaningful rate to estimate overhead costs, “savings expected from public-private competitions will be imprecise and competition decisions could continue to be controversial,” the report says.

Keep reading this article at: http://www.fiercegovernment.com/story/gao-critical-how-dod-estimates-insourcing-cost/2013-10-08

September 6, 2013 By AMK

Army contracting personnel weren’t aware of contracting rule

Army contracting personnel didn’t adhere to a new rule during their work on contracts worth about $10.5 billion because they weren’t aware of it, a report from the Defense Department office of inspector general says.

The rule, first implemented on an interim basis in March 2011, affects cost-reimbursement contracts, where contractors are paid for costs incurred during the fulfillment of the contract–as opposed to fixed-price contracts. Under the Federal Acquisition Regulation, a cost-reimbursement contract is acceptable only when uncertainties surrounding the contract prevent an accurate estimate of its cost.

The rule requires that DoD contracting personnel obtain approval for cost-reimbursements contracts at one level above the contracting officer or higher. They also have to document that approval.

Additionally, contracting personnel have to justify the use of a cost-reimbursement contract and document its potential to transition to a fixed-price contract. The rule also requires documentation that there are adequate resources to manage a cost-reimbursement contract.

The interim rule became a final rule, without significant changes, in March 2012, but the OIG audit only covered the nearly year-long period where it was still an interim rule.

Keep reading this article at: http://www.fiercegovernment.com/story/army-contracting-personnel-werent-aware-contracting-rule/2013-08-27

August 28, 2013 By AMK

Cost and price course scheduled in October

The Contracting Education Academy at Georgia Tech is offering a course focusing on the Fundamentals of Cost & Price Analysis in government contracting on October 14-25, 2013.

This comprehensive, two-week course begins with an in-depth review of the market research process, and provides instruction to help students understand and analyze contractor pricing strategies.

Attendees will learn to accomplish cost-volume-profit analysis, calculate contribution margin estimates, and develop cost estimating relationships in order to accomplish an effective price analysis pursuant to FAR Subpart 15.4.

After learning the basic elements of price and cost analysis, students will build and defend a pre-negotiation objective, including a minimum and maximum pricing objective with a weighted guidelines assessment. After successfully defending their pricing objectives, the students will practice face-to-face negotiations.

This course is targeted toward new hires to the contracting career field. For government contractors, this course also provides valuable insights into the government contracting decision-making process.

Student performance will be assessed by graded exams on math fundamentals and applied course material as well as an exercise for student participation and completion of negotiations.

CON 170 – Fundamentals of Cost & Price Analysis is Defense Acquisition University-equivalent training that satisfies the FAC-C and DAWIA certification programs. In addition, 7.35 CEUs are granted for successful course completion.

For more information or to register, please visit: http://www.pe.gatech.edu/courses/con-170-fundamentals-cost-and-price-analysis

August 27, 2013 By AMK

DoD urges acquisition cost reduction measures

Defense Department acquisition managers should routinely take measures to reduce cost, but those savings shouldn’t come at the expense of long-term degradation of effectiveness, says an Aug. 6 DoD memo from Under Secretary of Defense for Acquisition, Technology and Logistics (AT&L) Frank Kendall clarifying the Better Buying Power initiative.

Better Buying Power, which was launched in 2010, provides a set of best practices to improve acquisition through cost control and the “elimination of unproductive processes and bureaucracy.”

Program executive officers (PEOs) who head acquisition for specific programs should be the ones that ensure program managers implement the cost management of acquisitions, the memo says.

PEOs will review and approve “should cost” targets and monitor progress of cost reduction, the memo says.

Keep reading this article at: http://www.fiercegovernment.com/story/dod-urges-acquisition-cost-reduction-measures/2013-08-09

Download the DoD memo at: http://bbp.dau.mil/docs/USA003343-13%20signed%20memo.pdf

June 9, 2011 By AMK

Defense officials developing ‘world-class buyers’

Shay Assad is digging into the nitty-gritty of what defense agencies are paying for products and services to find how to get as much possible out of the money they spend.

Assad recently was named the new director of defense pricing at the Defense Department, a change from his previous position as a general acquisition policy adviser to Ashton Carter, under secretary for defense for acquisition, technology, and logistics. Assad’s now focused on putting the Better Buying Power Initiative into action, offering Carter pricing and profitability policies, Assad said in a press briefing June 2.

Dick Ginman, who worked as a one of Assad’s deputies, will take over the job as the director for defense procurement and acquisition policy.

With Carter’s program, DOD concentrates on how much it pays for things it buys. DOD also has to develop its workforce so it has better negotiating knowhow when dealing with a company on a contract’s pricing strategy.

“What we’re trying to do is become world-class buyers,” Assad said. He also said, “This is Dr. Carter’s way of placing additional emphasis in this area.”

Assad will push ahead Carter’s should-cost guidance by working with program executive officers and program managers to make their Should-Cost targets.

The will-cost/should-cost is an internal acquisition management tool that is geared to better estimate the costs of defense programs and save money. The point is to avoid paying more than initially negotiated, if not paying less.

Carter’s guidance for should-cost analysis includes close scrutiny of every cost of a program and tough negotiations with contractors even if there is only one bidder.

The should-cost guidance also has DOD tracking cost and performance trends and identifying alternatives throughout a program’s cycle that could contribute savings. DOD also has to compare similar programs and other programs from the same contractor.

To become the better buyers, acquisition employees told officials they need help.

“What the workforce told us was is that, we need better skills; we need better tools; we need better training,” Assad said.

To that end, defense officials have plans to help contracting officers better understand the aspects of pricing.

For example, they are building a central repository of pricing data, hosted by the Defense Contract Management Agency. The databases already exist for labor rates and DOD is testing the larger system now to make sure contracting officers can use it.

As the effort progresses in stages, contracting officers will add pricing details into the central database of information, listing the negotiated price and why they settled on that price.

Other DOD contracting officers will have access to that information on what’s been paid in the past for a product or service. Officers will avoid the tedious process of determining whether a price is reasonable. What sometimes took months to determine will be done in minutes, Assad said.

“Simply come online, and the data will be there,” he said.

About the Author: Matthew Weigelt is acquisition editor for Federal Computer Week. Published Jun. 02, 2011 at http://fcw.com/articles/2011/06/02/shay-assad-defense-pricing-role.aspx

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