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Pricing your Product or Service

Pricing your Product or Service. Florida Gulf Coast University Small Business Development Center Procurement Technical Assistance Center 239-745-3708 dtelep@fgcu.edu. Objectives. Cost Cost Realism Price Price Analysis Profit. References. FAR 14 Sealed Bidding

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Pricing your Product or Service

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  1. Pricing your Product or Service Florida Gulf Coast University Small Business Development Center Procurement Technical Assistance Center 239-745-3708 dtelep@fgcu.edu

  2. Objectives • Cost • Cost Realism • Price • Price Analysis • Profit

  3. References • FAR 14 Sealed Bidding • FAR 15 Contracting By Negotiations • FAR 16 Type of Contracts • FAR 30 Cost Accounting Standards Administration • FAR 31 Cost Principles and Procedures • FAR Appendix B Cost Accounting Rules • WWW.ARNET.gov/far (Down Load as a PDF file) Federal Acquisition Regulations

  4. Methods of Procurement • Sealed Bids (Price only) Invitation For Bid (IFB) • Negotiated (Price or Cost) Request For Quote (RFQ) (Price only) Request For Proposal (RFP) (Price or Cost Data)

  5. What is Cost? • Cost is the expense the contractor will incur in performing the work

  6. Cost Criteria: • Reasonable, Allowable and Allocable • Variable, Fixed, andSemi-Variable • Direct and Indirect

  7. COST CONTRACTS • Cost-Plus-Fixed Fee • Cost-Plus-Award Fee • Cost-Plus-Incentive Fee • Cost-Sharing

  8. THREE BASIC Cs FOR COST TYPE CONTRACTS • Know your Costs • Know your Customer • Know your Competition

  9. What will the Government Pay? • The Government will reimburse the contractor to do the work as long as the costs are allowable, reasonable, and properly allocable to the contract.

  10. What are the Cost Elements? (Your Company) • Direct Labor • Overhead • Material • Subcontractors • General and Administrative • Travel • Profit

  11. 1) Overhead may Include: • Cost of Doing Business ! ! ! ! ! • Taxes • Federal Taxes • Social Security Taxes (FICA) Employer portion • Medicare Taxes • Property Taxes • Licenses • State Licenses • County Business Licenses

  12. 2) Overhead Continued: • Fringe Benefits: • Employee Health Insurance • Annual Leave • Sick Leave • Family Leave • Retirement

  13. 3) Overhead Continued: • Office Space • Furniture • Electricity • Air Conditioning • Heat • Equipment Copiers Computers Phones

  14. 4) Overhead Continued: • Utilities: Sewage Waste Water Treatment Trash Removal Recycle Program

  15. 5) Overhead Continued: • Insurance: Building Car Truck Worker’s Compensation • Contract agreements: Credit Cards Bldg. Maintenance Lawn Service • Depreciation • Interest on Loans

  16. What are the Cost Elements? (State) • Salaries • Fringe Benefits • Travel • Other Direct Costs • In-House Charge • Indirect Costs • Profit

  17. Build a Cheeseburger?

  18. Base Line for the Cheeseburger • One made every 30 seconds, start to finish Includes: • Direct Labor • Overhead • Material • Profit

  19. Direct Labor- ½ minute labor $ 00.15 1 minute labor $ 00.30

  20. Overhead is • 100%

  21. Materials • Build a cheeseburger starting at the bottom • Bun Bottom • Mayonnaise • Mustard • Patty • Cheese • Pickle • Lettuce • Tomato • Ketchup • Sesame Seed Bun Top

  22. Materials

  23. + Materials

  24. Cost Elements for the Cheeseburger? • Direct Labor $ 0.15 • Overhead 100% $ 0.15 • Material $ 0.71 • Subtotal $ 1.01 • Profit 10% $ 0.10 • Total Cost $ 1.11

  25. What is Total Cost? • Cost Elements + Profit = Total Cost

  26. Cost Realism • Cost and Technical proposals must be realistic for the work to be performed • Reflect a clear understanding of the requirement • Cost must be consistent with the various elements of the technical proposal

  27. PROFIT • Represents the payment the contractor may receive for performance over and above the costs incurred for doing the work. • Contractor/Government Risk

  28. Profit Statutory Limits • Cost Plus Fixed Fee 10% • Research and Development Cost Plus Fixed Fee 15% • Architect and Engineering Services 6%

  29. What is Price? • Cost Elements + Profit = Price

  30. What is the Price for Your Service? • Direct Labor $10.00 (Unloaded Rate) • Overhead $15.00 Est. 150% • Material $ 3.00 Subtotal $28.00 • Profit $ 2.80 10% • Total Price $30.80 (Loaded Rate)

  31. Profit Factors for FFP Contracts • Market Competition • Contractor Risk 100%

  32. Are You Making a Profit ? Sales • Direct Cost • Indirect Cost = Net Profit

  33. Price Analysis • Process of examining and evaluating a proposed price without regard to evaluating the separate cost elements and proposed profit.

  34. Firm Fixed Price Contracts • Firm-Fixed-Price • Firm-Fixed-Price with Economic Adjustments • Indefinite Delivery Contracts • Time and Material • Labor Hour • Letter Contract

  35. Price must be Fair and Reasonable • Based on a) Adequate Price Competition b) Previous Prices c) Yardstick d) Published Prices or e) Independent Government Estimate

  36. Tips • 2080 Hours = Gov Staff Year • Loaded/Unloaded Rates • Separate Technical and Cost Proposals • Best Value Awards • DCMA- Direct Labor Rates Overhead G&A (For a Specific Company)

  37. SUMMARY • Cost • Cost Realism • Price • Price Analysis • Profit

  38. Thank You Contact Dan Telep at SBDC/PTAC 239-745-3708 dtelep@fgcu.edu www.fgcu.edu/cob/sbdc

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