PREPARING COST PROPOSALS Tangela Williams, CPA Sr. Cost/Price Analyst Cost and Price Analysis Branch

PREPARING PREPARING COST COST

PROPOSALSPROPOSALS

Tangela Williams, CPATangela Williams, CPASr. Cost/Price AnalystSr. Cost/Price Analyst

Cost and Price Analysis BranchCost and Price Analysis Branch

Vital Elements of A Proposal;Vital Elements of A Proposal; Proposal Examples, includingProposal Examples, including

Overhead Rate CalculationsOverhead Rate Calculations General & Admin (G&A) Rate General & Admin (G&A) Rate

CalculationCalculation Unallowable Costs;Unallowable Costs;

Preparing For an Audit;Preparing For an Audit; Common Deficiencies Found in Common Deficiencies Found in

Proposals.Proposals.

TOPICSTOPICS

VITAL ELEMENTS OF A PROPOSAL

Summary of Total Cost by Element Cross-referenced to each line item

Breakdown of Labor (FAR 15.408, Table 15-2 II.B.) Hours Rates and Costs by Appropriate Category

Consolidated Priced Bill of Materials Types, Quantities, Cost FAR 15.408, Table 15-2 II.A.

VITAL ELEMENTS OF A PROPOSAL

BASIS OF ESTIMATE

How Indirect Rates are Computed

How Indirect Rates are Applied;

Cost Breakdowns, Trends and Budgetary Data (FAR 15.408, Table 15-2 II.C.);

Identification of All Other Costs by Category and Basis for Pricing (FAR 15.408, Table 15-2 II.D.);

Rationale for Proposed Profit (FAR 14.404-4).

PROPOSAL EXAMPLES

SAMPLE PROPOSALXYZ Technologies, Inc.

Washington, DCProposal Submitted in Response to RFP #IRS-Show-Me-The -Money

ELEMENT OF COST AMOUNT REFERENCE

Engineering Labor $400,000 Schedule 1

Production Labor 30,000 Schedule 1

Direct Labor [email protected]% 25,800 Schedule 2

Material 110,000 Schedule 3

Material Handling [email protected]% 55,000 Schedule 4

Subtotal 620,800

G&A @8.0% 49,664 Schedule 5

Estimated Cost 670,464

Profit @10.0% 67,046

Total Price $737,510

Engineering Labor Cost SCHEDULE 1

Labor Category Rate Hours TotalProgram Manager $40.00 1,000 $ 40,000Sr. Engineer 28.00 9,000 252,000Jr. Engineer 24.00 4,500 108,000

Total Eng Labor $400,000 =======

Production Labor Cost

Labor Category Rate Hours TotalFabrication $10.00 2,000 $ 20,000Assembly 8.00 1,250 10,000

Total Production Labor $ 30,000 ======

SAMPLE PROPOSALXYZ Technologies, Inc.

Washington, DCProposal Submitted in Response to RFP #IRS-Show-Me-The -Money

SAMPLE RFP COST PROPOSAL

MAINTENANCE

SUPPORT

CONTRACT

SEE HANDOUT

PROPOSAL - EXERCISEYou are the owner of Small Company USA and you have just submitted a proposal to the federal Government. The Government has set aside the task of surveying a plot of land for the construction of a complex Government Building. The site is environmentally sensitive. Your company does not have the expertise to deal with the suspected pollutants believed to be under the site. Therefore, you have decided to subcontract certain aspects of the environmental site work to the only firm in the county that has the current technology to perform the necessary testing. This is your first proposal that you have prepared for the IRS. Even though the proposal is small, the C.O. has requested that DCAA perform a pre-award accounting survey and a review of your proposal.

What do you need to check out before the auditor arrives?

What can you anticipate that DCAA will be requesting?

PROPOSAL EXERCISESmall Company, Inc.

Proposal for Technical Support Services

Proposed Reference

Technical Labor $ 75,000 Schedule 1

Labor Overhead 39,937 Schedule 2

Subtotal $114,937

Subcontract Service 72,000 Schedule 3

Travel 3,000 Schedule 4

Total Cost Input $189,937

G&A 54,004 Schedule 2

Total Cost $243,941

Profit 24,394

Total Price $ 268,335

=======


Direct Labor Need Support for the $75,000 bid in this

proposal. Small Co. Inc. is bidding 2,500 hours at $30/hr.

Need to provide the basis for the 2,500 hours and the $30 per hours.



Schedule 1

Hours Rate Amount

Technical Labor (Note 1) 2,500 $30.00 $75,000

NOTE 1: Hours are based on Contract XYZ which was performed in FY 200X and was similar to this effort. The hourly rate is based on the current average rate paid to Technical support staff. Payroll records are available upon request.



Schedule 2

FY 2009 Budget DirectTotal Cost Overhead G&A Unallowable

Admin Labor $20,000 5,000 15,000Depreciation 2,000 2,000Fringe Benefits 5,000 4,000 1,000Interest 8,000 8,000Office Supplies 5,000 5,000Tech Labor 150,000 150,000Rent 10,000 10,000Travel 5,000 3,000 2,000Telephone 1,000 1,000Payroll Taxes 6,000 6,000Subcontracts 72,000 72,000 Miscellaneous 60,000 45,000 14,000 1,000 Total $344,000 225,000 80,000 30,000 9,000



Overhead Rate Calculation: Schedule 2

Overhead Pool = $80,000 == 53.33%

Direct Labor $150,000

G&A Rate Calculation:G&A Pool = $30,000

== 9.84%

Total Cost Input $305,000

UNALLOWABLE COSTS Determining Allowability (FAR 31.201-2); Reasonableness; Allocability; CAS (not applicable to small businesses),

GAAP and practices appropriate to the particular circumstances;

Terms of the Contract.



Subcontracted Services:

What is the basis for the $72,000 estimate? If it is “sole source” (which we put into the

scenario), then Small Co. is responsible for analyzing for reasonableness.

If competitive, then supply the quotes from the various bidders and explain why this one was selected.



Travel Cost What is the basis and purpose of the $3,000

estimated travel? Proposal indicates this will be a direct cost

(How do you know it is direct and not indirect?) Does the solicitation require a trip? What is the basis of the pricing?



TRAVEL Schedule 4

Cost Element #of Trips #of days Cost Total NOTESAirfare 3 n/a $429 $1,287 1Car Rental 1 2 55 105 2Lodging 3 3 120 360 3Incidentals 3 3 40 120 4Mileage 3 n/a 35 35 5Per Diem 3 3 40 120 5

$3,000 =====

NOTES: 1. Airfare estimated based on coach airfare from Denver to Baltimore April, 2009. Telephone quotes available upon request.

Notes 2, 3, 4, 5 – Provide a basis consistent with your company’s policies and procedures (policy should be in accordance with Federal Travel Regulations).

PREPARING FOR AN AUDIT Personnel Familiar Readily Available An Adequate Accounting System Detailed Schedules Used Available Data Related to the Proposed Costs (Supporting

Documentation) Readily Available Provide the Proposal and Supporting Data in

Electronic Format Financial Statements of the Company

Lack of Supporting Data; No Basis of Estimate; Does Not Comply With RFP Instructions; Schedules Don’t Tie Into Summary Amounts; No Grand Total Summary; and Math Errors.

COMMON DEFICIENCIES

FAR PART 15 – Contracting By Negotiation FAR PART 31 – Contract Cost Principles OMB Circular A-122 – Cost Principles for

Non-Profit Organizations Contract Pricing Guides

DCAA – www.dcaa.mil FAI – http://www.acq.osd.mil/dpap/contractpricing/index.htm

REFERENCES

QUESTIONS AND ANSWERS

Documents

PREPARING COST PROPOSALS Tangela Williams, CPA Sr. Cost/Price Analyst Cost and Price Analysis Branch