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Beverly Arviso, CPA, CPCM, CFCM Founder, Arviso, Inc. beverly@arvisoinc 757-373-9536

Breakout Session 801: Proposal Pricing Strategies. Beverly Arviso, CPA, CPCM, CFCM Founder, Arviso, Inc. beverly@arvisoinc.com 757-373-9536. Objectives. Proposal Strategy Understanding the requirements Price Analysis vs. Cost Analysis Direct Labor Rate Development

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Beverly Arviso, CPA, CPCM, CFCM Founder, Arviso, Inc. beverly@arvisoinc 757-373-9536

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  1. Breakout Session 801: Proposal Pricing Strategies Beverly Arviso, CPA, CPCM, CFCM Founder, Arviso, Inc. beverly@arvisoinc.com 757-373-9536

  2. Objectives Proposal Strategy Understanding the requirements Price Analysis vs. Cost Analysis Direct Labor Rate Development Indirect Rate Development Proposal Pricing Strategies Common Pitfalls and Helpful Hints

  3. Proposal Strategy • Determining what opportunities to pursue • Who is included on the proposal team? • When does proposal activity start? • Bid/No Bid Decision • Teaming Relationships • Prime or Sub? • Importance of Teaming Agreements and Non-Disclosure Agreements • Gathering data from teammates

  4. Understanding the requirements • Read the Solicitation • Determine Contract Type(s) • Section B, Supplies or Services and Prices/Cost • Section C, Statement of Work • Section L, Instructions, Conditions, and Notices to Offerors • Section M, Evaluation Factors for Award

  5. Price Analysis vs. Cost Analysis What is the difference between cost and pricing?

  6. Price Analysis The government is able to determine the price to be fair and reasonable without evaluating the separate cost elements and proposed profit Competition in the market determines the price

  7. Price Analysis • Price Analysis Techniques • Competitive price proposals • Comparison of previously proposed prices for the same or similar items or service • Commercial items or services • Prices set by law or regulation • Catalog prices • Price Analysis alone may not be sufficient for: • Sole source FFP and T&M procurements • Modification or changes to existing FFP or T&M Contracts

  8. Cost Analysis • Analyzing the various cost elements that make up the price, e.g., labor, materials, overhead, and profit, in order to determine if the price proposed is fair and reasonable to the Government • Price analysis must still be performed • Each element of cost must be verifiable • Direct Labor • Materials • Travel • Subcontract costs

  9. Direct Labor Rate Development Actual direct labor rates Labor category rates Blended rates (covers several categories) Weighted average category rates Category rates when using prime and subcontractor labor

  10. Indirect Rate Development • Define direct costs • Define indirect costs • Costs that can’t be directly assigned to the contract • Consist of cost pools and allocation bases • Pools are defined by placing costs in logical groupings, e.g., fringe costs, overhead costs, G&A costs, unallowable, etc. • The allocation base is defined as some measure of cost that can be used to allocate the pool cost, e.g., direct labor hours, direct labor dollars, machine hours, etc. • Indirect rate = cost pools/allocation base • Document indirect rates

  11. Indirect Rate Development • Indirect Rates • vary from company to company • are valid for the course of 1 fiscal year • determine the “multiplier” for the company • Are used for: • Budgeting • Billing • Proposals • Forward pricing rate agreements (FPRAs) (FAR 15.407-3)

  12. Indirect Rate Development • FPRAs • Are voluntary agreements entered into to facilitate negotiations of contracts and modifications • Represent reasonable projections of specific costs that are not easily estimated for or identified with a specific contract • May include rates for labor, indirect costs, material obsolescence and usage, spare parts provisioning and material handling • may cover multiple years • Allocation of pools and bases should be consistent with accounting practices

  13. Indirect Rate Calculation • Review Indirect Rate Sample 1 • Review Indirect Rate Sample 2 • Impact of Change • 40% Increase to Direct Labor and Fringe • 10% Increase to Subcontractor Costs • Fringe increased from 19.71% to 20.94% • Overhead decreased from 23.30% to 16.56% • G&A decreased from 15.11% to 11.66% • Multiplier decreased from 1.699 to 1.574

  14. Indirect Labor Rate Development • Changing your indirect rates for bidding • Consider new rates for changing conditions, esp. large bids • Calculate and document new rate projections • Bid revised rates now!, then…. • Submit revised Forward Pricing Proposal • Provide narrative explaining how rates are applied, e.g., overhead is applied to the sum of direct labor • For CAS covered contractors, MUST be consistent with disclosure statement

  15. Proposal Pricing Strategies • Create multiple fringe rates • Define labor classes according to fringe benefits • Customize benefits for employees, especially semi-retired • Benefits packages by division Note: Monitor compliance with DOL and 401(k) Rules

  16. Proposal Pricing Strategies • Diversify overhead rate(s) to reflect • Customer site vs. contractor site • Government vs. commercial • Geographic distinctions • Product/service lines • Long term vs. short term projects

  17. Proposal Pricing Strategies • Create project-specific overhead rate • A dedicated effort within a business unit • Employees dedicated to project • One rate for “on-site” (contractor) and “off-site” (customer) employees • Indirect costs may be direct

  18. Proposal Pricing Strategies • Eliminate/reduce indirect cost applied to pass-throughs • Change G&A base from TCI to value-added • Create material handling pool(s) • Define subcontracts vs. consultants

  19. Proposal Pricing Strategies • Separate materials from subcontracts • Create materials acquisition pool (drop-ship equipment, software, purchased maintenance, licenses) • Create separate subcontracts management pool • Strategically different rates

  20. Proposal Pricing Strategies • Revise direct vs. indirect criteria • Does it support contract’s SOW activities? • Does it support contract deliverables? • Job titles and descriptions may need revisions

  21. Proposal Pricing Strategies • Refine cost escalation techniques • Consider impact of contract type on escalation • Vary escalation by cost element • Escalate (+ or -) indirect rates • Manage promotions vs. raises

  22. Common Pitfalls and Helpful Hints • Review solicitation web site often for changes • Prepare, update, and deliver your proposal using a compliance matrix that is updated as changes to the solicitation are noted • Reduce math errors or inconsistencies in the price/cost proposal by: • Use rounding • Have independent party verify cost proposal on a calculator • Certified Cost or Pricing Data • Profit/Fee Objectives

  23. Common Pitfalls and Helpful Hints • Negotiation of subcontract type • What should you do when your customer only has x dollars and you know it will cost more to perform the work? • may want to consider offering discounts to GSA rates and materials when using a GSA contract vehicle • Promise something in technical, but failed to account for the cost in the cost proposal • Cost proposal not prepared consistent with accounting practices can create problems

  24. Questions Beverly Arviso, CPA, CPCM, CFCM Founder, Arviso, Inc. beverly@arvisoinc.com 757-373-9536

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