Financial Aspects of Contracting with the Federal Government: The Process, Needs, and Requirements

1. Financial Aspects of Contracting with the Federal Government: The Process, Needs, and Requirements James F. Nagle Oles Morrison Rinker & Baker LLPwww.oles.com

2. References • FAR • DEAR • DOE Source Selection Guide • DOE’s Source Selection for the Source Selection Official Financial Aspects of Contracting with the Federal Government

3. References • FAR 15.4 Contract Pricing • FAR 31 Contract Cost Principles and Procedures • DEAR 915.4 • DEAR 931 • DEAR 970.1504 • DEAR 970.31 Financial Aspects of Contracting with the Federal Government

4. Sources • Nash & Cibinic, Cost Reimbursement Contracting • Manos, Government Contract Costs & Accounting • Contract Pricing Reference Guides – 5 Volumes • FAR 15.404-1(a)(7) Financial Aspects of Contracting with the Federal Government

5. Definitions • Price:FAR definition (FAR 15.401) Cost plus any fee or profit (applicable to the contract type) • Pricing:The process of establishing a reasonable amount or amounts to be paid for supplies or services • Commercial prices: Prices being paid by the general public for a product • Competitive prices: Offers received under conditions of adequate price competition • Cost analysis: The review and evaluation of the separate cost elements and profit in an offeror’s proposal • Price analysis: The process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit Financial Aspects of Contracting with the Federal Government

6. What is Source Selection? • “Source selection” is the decision process used in competitive, negotiated contracting to select the proposal that offers the best value to the Government • The source selection process is governed by statute and regulations • “Best value” means the expected outcome of an acquisition that, in the Government’s estimation, provides the greatest overall benefit to the Government in response to the Government’s requirement • The Government official responsible for selecting the winning offeror in a negotiated procurement is the Source Selection Official (SSO) • The decision by the SSO has a significant impact on the Department’s ability to successfully accomplish its programmatic missions • While there are many participants in the source selection process, the “buck” stops with the SSO Financial Aspects of Contracting with the Federal Government

7. Source Selection Authority • Contracting Officer is responsible for source selection, unless agency head appoints another individual [FAR 15.303(a)] • In DOE the Secretary has delegated source selection authority to the Source Selection Official (SSO) as follows (AL 2000-09) • Procurement Executive: Major facility management contracts (M&O, M&I, EM remediation) • Head of Contracting Activity (HCA): All other procurement actions • These delegated authorities may be re-delegated • SSO authority is delegated to an individual person, not a position or title Financial Aspects of Contracting with the Federal Government

8. SSO’s Responsibilities • Establish an evaluation team – Source Evaluation Board (SEB) • Ensure the SEB is qualified and has the resources to accomplish the evaluation • Ensure the SEB is appropriately briefed and follows procurement integrity • Approve the Acquisition Plan • Approve the Request for Proposal (RFP) • Ensure consistency among solicitation requirements, e.g., statement of work, proposal preparation instructions, evaluation factors, contract provisions, etc. • Assure the statement of work reflects the Government’s requirements • Ensure the Rating Plan is consistent with the evaluation criteria (Section M) Financial Aspects of Contracting with the Federal Government

9. SSO’s Responsibilities • Approve the Rating Plan • Ensure proposals are evaluated based solely on the factors contained in the solicitation • Consider the evaluations of the SEB, advisory boards or panels, and ex-officio members of the SEB • Evaluations must be consistent with the RFP and the Rating Plan • Ensure documentation of the SEB is clear, thorough, and complete • Select the source whose proposal is the best value to the government • Document the selection Financial Aspects of Contracting with the Federal Government

10. Source Evaluation Board SSO Ex-Officio Advisors Counsel Technical Team *SEB Chairman *SEB Members *Contracting Officer Cost Team Contract Specialist Business Mgmt. Team Specialty Advisors *The Contracting Officer may also serve as the SEB Chairman or an SEB member. Financial Aspects of Contracting with the Federal Government

11. Selecting the Contract Type • Payment Arrangement (Fixed Price versus Cost Plus) • Incentives or Not (Incentive Fee, Award Fee) • Order Flexibility (Indefinite Delivery Contracts, Task Order, T&M or Labor Order Contracts) • Funding • Options Financial Aspects of Contracting with the Federal Government

12. Financial Aspects of Contracting with the Federal Government

13. Who or What Polices This • Agency Head • Senior Procurement Executive • Protest System Financial Aspects of Contracting with the Federal Government

14. Preparing Instructions for Evaluators In preparing instructions for evaluators, ask them to— ü First read RFP sections C, L, and M, and the source selection plan to ensure an understanding of the criteria ü Sign the procurement integrity documentation per agency requirements ü Create initial ratings and/or analysis of how each proposal fares against the solicitation’s factors and subfactors ü Detail the proposal’s specific deficiencies, significant weaknesses, and relative strengths ü Perform an overall comparative assessment of each proposal’s potential for award (preliminary rank of offerors) Financial Aspects of Contracting with the Federal Government

15. Preparing Instructions for Evaluators (continued) ü Consider the need for exchanges about an offeror’s proposal and, if necessary, specific on what must be asked of the offeror ü Consider the need to amend the RFP and, if necessary, the nature of any amendment ü Recommend negotiation objectives ü Be ready to provide support during discussions and any debriefings Financial Aspects of Contracting with the Federal Government

16. Preparing Instructions for Evaluators (continued) • Evaluators should be advised that evaluation should be documented, including any consensus findings • Evaluators should also understand they are not to discuss proposals or their evaluation with offerors; all exchanges must be controlled by contracting personnel • Documentation must be contemporaneous • The evaluation team leader and any other individuals required by agency policy should sign the summary evaluation report Financial Aspects of Contracting with the Federal Government

17. Requests for Proposals (FAR 15.203) Communicate the government’s requirements in negotiated acquisitions and to solicit proposals Provide anticipated terms and conditions that will apply to the contract RFPs May authorize offerors to propose alternative terms and conditions Authorize submission of proposals, modifications, and revisions by electronic commerce or by facsimile when appropriate Financial Aspects of Contracting with the Federal Government

18. Uniform Contract Format for RFPs FAR 15.204-1 Financial Aspects of Contracting with the Federal Government

19. Exchanges with Industry Before Receipt of Proposals (FAR 15.201) Exchanges of information among all interested parties, from the earliest identification of a requirement through receipt of proposals, are encouraged to— Improve industry’s understanding of government requirements Improve government’s understanding of industry capabilities Support the process of market research Identify and resolve issues and concerns regarding an acquisition strategy Financial Aspects of Contracting with the Federal Government

20. Contracting Officer as Focal Point of Exchanges (FAR 15.201(f)) • After release of the solicitation, the CO shall be the focal point on all exchanges • The CO must distribute, to interested parties, all information that is potentially helpful for proposal preparation • Don’t forget procurement integrity—protects bid or proposal information and source selection information from unauthorized disclosure, but does not restrict exchanges before receipt of proposals Don’t forget procurement integrity –protects bid or proposal information and source selection information from unauthorized disclosure, but does not restrict exchanges before receipt of proposals Financial Aspects of Contracting with the Federal Government

21. Best Value • Objective of source selection is to select the proposal that represents the best value • Best value means the expected outcome of an acquisition that, in the Government’s estimation, provides the greatest overall benefit in response to the requirement (FAR 2.101) • In different types of acquisitions, relative importance of cost or price may vary LPTA Method Trade-offMethod BEST-VALUE CONTINUUM Source: FAR 15.101, 15.302 Financial Aspects of Contracting with the Federal Government

22. Lowest-Price-Technically-Acceptable Source Selection Process (FAR 15.101-2) • Used when best value is expected to result from the technically acceptable proposal with the lowest evaluated price • Evaluation factors and significant subfactors shall be identified in the solicitation • Solicitations shall specify that award will be made on the basis of the lowest evaluated price of proposals meeting or exceeding the technical requirements Financial Aspects of Contracting with the Federal Government

23. Lowest-Price-Technically-Acceptable Source Selection Process (FAR 15.101-2) (continued) • Trade-offs are not permitted; therefore, proposals are not ranked using noncost/price factors • Evaluation is on acceptable/unacceptable or pass/fail basis; no comparative evaluation • Past performance is generally evaluated unless the CO documents that it is not an appropriate factor for evaluation • If a small business’s past performance is considered unacceptable by the CO, the matter shall be referred to the Small Business Administration for a Certificate of Competency determination Financial Aspects of Contracting with the Federal Government

24. Trade-off Process (FAR 15.101-1) • Provides Flexibility • Is used when the government may award to other than the lowest-priced offeror • Trade-offs can be made between cost or price and noncost factors • Rationale for the trade-offs must be documented in the file • Consider trade-offs between price and nonprice factors when • Using performance or functional specifications that permit a variety of technical approaches, each characterized by strengths and weaknesses Financial Aspects of Contracting with the Federal Government

25. Evaluation Factors and Significant Subfactors • Foundation for the whole evaluation process • Develop factors tailored to the acquisition that reflect agency needs (usually a joint effort between the PM and CO) • Select factors and significant subfactors that support meaningful comparisons between and among competing proposals; that is, be a true discriminator • Disclose evaluation factors, including their relative importance, clearly in the solicitation • Apply the factors consistently (in the evaluation process Financial Aspects of Contracting with the Federal Government

26. Disclosure of Evaluation Factors and Significant Subfactors (FAR 15.304(d)) • All factors and significant subfactors that will affect contract award and their relative importance shall be stated clearly in the solicitation • The solicitation shall state, at a minimum, whether all evaluation factors other than cost or price when combined are— • Significantly more important than cost or price • Approximately equal to cost or price; or • Significantly less important than cost or price Financial Aspects of Contracting with the Federal Government

27. Development of Evaluation Factors and Significant Subfactors (FAR 15.304(c)) • Evaluation factors and significant subfactors are within the discretion of agency acquisition officials except— • Price or cost to the government shall be evaluated • Quality shall be addressed through one or more noncost evaluation factors such as— • Past performance • Compliance with requirements • Technical excellence • Management capability • Personnel qualifications • Prior experience Financial Aspects of Contracting with the Federal Government

28. Typical Evaluation Criteria • Attributes • Technical—the product or service • Management—the proposer • Price/cost—cost realism • Past performance • Small business/small disadvantaged businesses (SB/SDBs) • Weights Financial Aspects of Contracting with the Federal Government

29. Technical Factors • Capacity • Speed • Acceleration • Appearance • Safety • Fuel mileage • Maintenance Financial Aspects of Contracting with the Federal Government

30. Sample Management Subfactors • Personnel qualifications • Financial resources • Capabilities of facilities • Experience • It is not double-counting to evaluate both experience and past performance Financial Aspects of Contracting with the Federal Government

31. Past Performance Factors • FAR Subpart 42.15 • FAR Subpart 15.3 • Few due process rights • Record Steel and Construction v. United States • Past performance shall be evaluated for competitive negotiations expected to exceed the simplified acquisition threshold ($100,000) • Unless the CO concludes and documents that past performance is not an appropriate evaluation factor for the acquisition Financial Aspects of Contracting with the Federal Government

32. Oral Presentations (FAR 15.102) • May substitute or augment written information, except for offer sheet, certifications, and representations • Should express capabilities not promises • Videotaped or prerecorded presentations not considered oral presentations • May occur any time during the acquisition process • Be careful to avoid impermissible discussions Financial Aspects of Contracting with the Federal Government

33. Oral Presentations (FAR 15.102) (continued) • Oral presentations typically include— • Offeror’s capabilities • Past performance • Work plans and approaches • Staffing and resources • Transition plans • Sample tasks • To reduce the costs for small business, an agency may consider the possibility of teleconferencing or videoconferencing Financial Aspects of Contracting with the Federal Government

34. Proposal Evaluation—Heart of the Source Selection Process • Technical evaluation • Past performance evaluation • Cost or price evaluation • Cost information • Small business subcontracting evaluation Components of the evaluation process include— Financial Aspects of Contracting with the Federal Government

35. Proposal Evaluation (FAR 15.305(a)) • Proposal evaluation: assessment of a proposal and the offeror’s ability to perform the contract successfully • Agency shall assess proposal’s relative qualities solely on factors and subfactors stated in solicitation • Evaluations may be conducted using any rating method • Relative strengths, deficiencies, significant weaknesses, and risks supporting proposal evaluation shall be documented in the contract file Financial Aspects of Contracting with the Federal Government

36. Government Pricing Policy (FAR 15.402) • FAR 15.402(a)— • In establishing the reasonableness of the offered prices, the CO shall not obtain more information than is necessary Financial Aspects of Contracting with the Federal Government

37. Information Requests(FAR 15.402) • Order of preference to establish fair and reasonable price • No additional information (adequate price competition) • “Information Other than cost or pricing data”: • When cost or pricing data is not required • Information related to prices (e.g., established catalog or market prices or previous contract prices), relying first on: • Information available within the Government; • On information obtained from sources other than the offeror; and, if necessary, • On information obtained from the offeror • Unless an exception under FAR 15.403-1(b)(1) or (2) applies, the offeror shall include, appropriate information on prices at which the same or similar items have been sold previously Financial Aspects of Contracting with the Federal Government

38. Information Requests (continued) • Ascertain whether a fair and reasonable price can be determined before requesting c or p data • Do not require unnecessarily the submission of cost or pricing data, because it leads to: • increased proposal preparation costs, • generally extends acquisition lead time, and • consumes additional contractor and Government resources Financial Aspects of Contracting with the Federal Government

39. Instructions for Submission of Cost or Pricing Data or Information Other Than Cost or Pricing Data (FAR 15.403-5) The CO shall specify in the solicitation— • Whether cost or pricing data are required • That the offeror may request an exception from the requirement to submit cost or pricing data • Any information other than cost or pricing data that are required • Necessary preaward or postaward access to offeror’s records Financial Aspects of Contracting with the Federal Government

40. No required standard form Otherwise, contractor’s own format Instructions for Submission of Information Other Than Cost or Pricing Data (FAR 15.403-5(b)(2)) Format specified in the solicitation—but only if the CO determines specific format is essential Financial Aspects of Contracting with the Federal Government

41. Truth In Negotiations Act – Defective Pricing • Public Law 87-653 as amended by Public Law 89-369 • Evolution • Not a Criminal Statute, but it is the basis for many criminal prosecutions • Purpose • Level the Playing Field Financial Aspects of Contracting with the Federal Government

42. Requiring Cost or Pricing Data (FAR 15.403-4) Truth in Negotiations Act (TINA) of 1963 • Essentially a disclosure law to enhance government’s ability to negotiate fair prices by ensuring CO has same factual information available to contractor at time of negotiations • Establishes requirements for cost and pricing data Financial Aspects of Contracting with the Federal Government

43. When To Obtain Cost Or Pricing Data • Award of a negotiated contract expected to exceed $700,000 • Award of a subcontract at any tier expected to exceed $700,000 if the prime contractor and each higher tier sub had to submit cost or pricing data • Modification of a prime contract involving a price adjustment expected to exceed $700,000 • Modification of a subcontract at any tier involving a price adjustment expected to exceed $700,000 Financial Aspects of Contracting with the Federal Government

44. When To Obtain Cost Or Pricing Data (continued) • Cost or pricing data may also be required by the Head of the Contracting Activity for actions expected to cost between $150,000 and $700,000 • HCA must justify the decision in writing and cannot delegate Financial Aspects of Contracting with the Federal Government

45. Cost Or Pricing Data • All facts that, as of the date of price agreement or, if applicable, an earlier date agreed upon between the parties that is as close as practicable to the date of agreement on price, prudent buyers and sellers would reasonably expect to affect price negotiations significantly • Factual, not judgmental, and verifiable • Include vendor quotations, non-recurring costs, unit cost trends, make or buy decisions Financial Aspects of Contracting with the Federal Government

46. Prohibition on Obtaining Cost or Pricing Data (FAR 15.403-1) • Cost or pricing data shall not be obtained for acquisitions below the simplified acquisition threshold • Other exceptions to cost or pricing data: • Adequate price competition • Prices set by law or regulation--utility rates • Acquisition of a commercial item • Waiver by head of contracting activity • Modifications for commercial items Financial Aspects of Contracting with the Federal Government

47. Adequate Price Competition • Two or more responsible offerors • Competing Independently • Price substantial factor in source selection • Price not unreasonable Financial Aspects of Contracting with the Federal Government

48. Adequate Price Competition(continued) • One offer received • Reasonable expectation of two or more responsible offerors • Offeror expected competition Financial Aspects of Contracting with the Federal Government

49. Submitting Cost Or Pricing Data • Old rule – Standard Form 1411 • Now use cover letter and Table 15-2 • Alternate format • Allow contractors to use their own format Financial Aspects of Contracting with the Federal Government

50. Submitting Cost Or Pricing Data (continued) • Must make adequate disclosure • Deliver physically • Disclose significance • To appropriate person Financial Aspects of Contracting with the Federal Government