Guide to Contract Pricing

by Murphy, John Edward

• ISBN13: 9781567261271
• ISBN10: 1567261272
• Edition: 3rd
• Format: Hardcover
• Copyright: 2001-01-01
• Publisher: Management Concepts Inc

Table of Contents

Basic Pricing Policy and Concepts	1	(16)
Pricing Restraints in Government Contracting	1	(1)
Use of Public Funds	1	(1)
Promote Full and Open Competition	1	(1)
Pricing Advantages in Government Contracting	2	(2)
The Government Is the Only Buyer	2	(1)
High Volume Purchases	2	(1)
The Government Pays Its Debts	3	(1)
Prompt Payment of Bills	3	(1)
Most Favored Customer Treatment	3	(1)
Cost and Pricing Data	4	(1)
What Is a Fair and Reasonable Price?	4	(13)
Market-Based Prices	4	(2)
Cost-Based Prices	6	(1)
Definition of Cost	6	(1)
Definition of Profit	7	(1)
Definition of Price	7	(1)
Cost-Plus-Profit Pricing	8	(1)
More on the Pricing of Commercial Products	9	(2)
Variable (Incremental) Cost Pricing	11	(1)
Price Analysis	12	(1)
Cost Analysis	12	(1)
Adequate Price Competition	13	(2)
A Single Reasonable Offer	15	(1)
Certificate of Independent Price Determination (FAR 103-1)	15	(1)
Precautions against Buy-Ins	16	(1)
Contracting Methods and Contract Types: Pricing Implications	17	(10)
Contracting Methods	17	(5)
Sealed Bidding (FAR Part 14)	18	(1)
Negotiation (FAR Part 15)	19	(3)
Government Contract Types (FAR Part 16)	22	(3)
Impact of Cost or Price Evaluation on Contract Type (FAR 1305(1))	22	(1)
Fixed-Price Contracts (FAR Subpart 16.2)	22	(2)
Cost-Reimbursement Contracts (FAR Subpart 16.3)	24	(1)
Simplified Acquisition Procedures (FAR Part 13)	25	(1)
Price Analysis for Purchases below $100,000	25	(2)
Price Analysis	27	(16)
Purposes of Price Analysis	27	(2)
Forecasting the Likely Price of an Acquisition	27	(1)
Evaluating Bids, Proposals, and Quotations	28	(1)
Selecting the Bidder or Offeror for Award	28	(1)
Preparing for Price Discussion in Negotiation	28	(1)
Methods for Performing Price Analysis	29	(11)
Price Analysis	29	(10)
Pricing Information Provided by the Offeror	39	(1)
Auxiliary Techniques for Price Analysis	39	(1)
The Best Way to Do Price Analysis	40	(3)
Cost Principles and Cost Classifications	43	(24)
Cost Accounting	44	(1)
Cost Classifications	45	(14)
Reasonable, Allowable, and Allocable Costs	45	(4)
Variable, Fixed, and Semi-Variable Costs	49	(6)
Direct and Indirect Costs	55	(4)
Cost Principles	59	(1)
Cost Accounting Standards	60	(7)
Obtaining Cost or Pricing Data	67	(24)
Obtaining Cost and Pricing Data	67	(2)
Hierarchical Preferences	67	(2)
Exceptions to Cost or Pricing Data Requirements	69	(1)
Cost Analysis and Cost Realism	69	(2)
Cost Analysis	70	(1)
Cost Realism	71	(1)
Obtaining Cost Information	71	(8)
Information Other than Cost or Pricing Data	72	(1)
Certified Cost or Pricing Data	72	(7)
Submission of Cost or Pricing Data	79	(1)
Paper or Electronic Data Submission	80	(1)
Identifying the Consequences of Certifying Defective Data	80	(1)
Defective Cost or Pricing Data	81	(1)
Contract Clauses	81	(10)
Analysis of Direct Labor Costs	91	(28)
Analyzing Direct Labor Costs	92	(1)
Direct Labor Cost	92	(1)
Indirect Labor Cost	93	(1)
Allocation of Labor to Direct or Indirect Cost	93	(1)
How Companies Estimate Direct Labor Costs	93	(5)
Work Breakdown Structures	94	(3)
Phase Diagrams	97	(1)
The Importance of Analyzing Direct Labor Costs	98	(1)
Fixed-Price Contracts	98	(1)
Cost-Reimbursement Contracts	98	(1)
Format for Submitting Direct Labor Costs	99	(2)
General Method for Analyzing Direct Labor Cost	101	(7)
Analysis of Proposed Skills and Hours	101	(1)
Analysis of Proposed Rates	102	(1)
Assessing Proposed Average Wage Rates	103	(4)
Projecting Wage Rates	107	(1)
The Historical Cost Method for Estimating Labor Costs	108	(2)
Labor Standards Methods for Estimating Labor Costs	110	(2)
Meaning and Types of Labor Standards	110	(1)
Components of Standard Time	110	(1)
How Labor Standards Are Used	111	(1)
Estimating Labor Hours Based on Standards	111	(1)
The Learning Curve (Improvement Curve)	112	(3)
Learning Curve Tables	114	(1)
Learning Curve Applications and Limitations	114	(1)
Analysis of Engineering Labor	115	(1)
Factors to Consider in Analyzing an Engineering Labor Proposal	115	(1)
Direct and Indirect Labor in Manufacturing	115	(4)
Analysis of Direct Material and Other Direct Costs	119	(16)
Direct Material Costs	119	(3)
Estimating Direct Material Costs	120	(2)
Estimating Unit Costs	122	(1)
Cost Analysis for Direct Materials-General Rules	122	(1)
FAR Submission Requirements for Material Costs	123	(4)
Analysis of Proposed Estimated Materials Costs	127	(1)
Analysis of Proposed Materials and Quantities-Estimating Direct Material Costs	128	(3)
The Statistical Approach	128	(1)
Priced Bill of Materials	129	(1)
Projection of Average Unit Material Cost	130	(1)
Unit Price of Material	131	(1)
Importance of the Direct Material Cost Estimate	131	(2)
Negotiating Fixed-Price Contracts	132	(1)
Negotiating Cost-Reimbursement Contracts	132	(1)
Other Direct Costs	133	(2)
Analysis of Indirect Costs	135	(32)
What Are Indirect Costs?	135	(2)
Types of Indirect Costs	136	(1)
Overhead Expense	137	(19)
Controlling Overhead Costs	138	(1)
The Composition of Overhead Costs	138	(1)
Methods of Allocating Overhead Cost	139	(4)
Summary of Allocation	143	(1)
Effect of Different Allocation Bases	143	(2)
Typical Example of Overhead Allocation	145	(2)
Underabsorption and Overabsorption of Overhead Costs	147	(1)
Cost Analysis of Overhead Rates	148	(2)
Analysis of the Overhead Rate	150	(1)
The Location of Certain Labor-Related Expenses	151	(1)
Vacation, Holiday, and Sick Pay	152	(1)
Proper Handling of Overtime Premium, Costs	153	(1)
Forward Pricing Rate Agreements	153	(1)
Analysis of Overhead Cost	154	(1)
Analysis of the Basis of Allocation	155	(1)
The Importance of Overhead Rate Analysis	155	(1)
General and Administrative (G&A) Expense	156	(11)
The Government View of G&A Expense	158	(1)
The Allowability of G&A Expense	158	(1)
Problems in the Allocation of G&A Expense	159	(1)
Allocation Methods for G&A Expense	160	(1)
The G&A Portion of a Pricing Submission	161	(2)
Analysis of the G&A Rate	163	(4)
Facilities Capital Cost of Money	167	(8)
The Concept of Facilities Capital Cost of Money	167	(1)
The Allowability of Facilities Capital Cost of Money	168	(1)
Contract Provisions and Clauses	168	(1)
The Procedure for Determining Facilities Cost of Money	169	(6)
Step 1: Determine the Current Cost-of-Money Rate	169	(1)
Step 2: Record Net Book Value of Property	169	(1)
Step 3: Allocate the Average Net Book Value of Property	169	(1)
Step 4: Record Total Net Book Value by Organization Segment	170	(1)
Step 5: Calculate the Imputed Cost of Capital	170	(1)
Step 6: Allocate the Total Imputed Cost for All Facilities	170	(1)
Facilities Capital Cost of Money Factors (Column 7)	171	(1)
Final Calculation of Facilities Capital Cost of Money	171	(4)
Profit or Fee Determination	175	(12)
How Are Profits Set by a Company?	175	(1)
Broad Government Policies Regarding Profit	176	(1)
Misconceptions about Profit and Fee	176	(1)
Adequate Profit Is in the Government's Best Interest	177	(1)
Detailed Government Policies Regarding Profit	177	(3)
Contracting Officer Responsibilities (FAR 1404-4(c))	178	(1)
Factors Bearing on Profit Levels for Government Contracts	179	(1)
The Structured Profit Approach	180	(4)
GSA Structured Profit Guidelines	180	(1)
Profit Factors	180	(4)
Summary	184	(3)
Appendix A: Checklist for Adequacy of Submitted Cost and Pricing Data	187	(2)
Appendix B: Glossary	189