Cost analysis is the review and evaluation of the separate cost elements and proposed profit/fee of an offeror's certified cost or pricing data or data other than certified cost or pricing data.
Government Objective:
purchase at fair and reasonable price
price each contract separately
exc...
Cost analysis is the review and evaluation of the separate cost elements and proposed profit/fee of
an offeror's certified cost or pricing data or data other than certified cost or pricing data.
Government Objective:
purchase at fair and reasonable price
price each contract separately
exclude contingencies - ANSWERIn contracting, when you act as the government's buyer, your
primary objective is to acquire supplies and services from responsible sources at fair and reasonable
prices.
The three approaches acknowledged by the government to attain this objective are:
Price analysis
Cost analysis
Cost realism analysis
It is critical that you understand techniques and terms of cost analysis. Terms that are important not
only include cost analysis, price analysis, and cost realism analysis, but also terms such as direct
costs, indirect costs, and other direct costs.
In addition, there are techniques with which you should be familiar. These include the various price
analysis techniques and procedures that help the government to ensure a fair and reasonable price.
You may be responsible for selecting the techniques for comparison that are used to verify that the
overall price that is offered is fair and reasonable. - ANSWERIn order to develop a prenegotiation
position, you will analyze contract costs and price using contract analysis techniques.
,It is important to evaluate the separate cost elements and proposed profit/fee to determine how the
proposed costs represent the cost of the contract, assuming reasonable economy and efficiency. -
ANSWERContracting Officers are required to purchase supplies and services from responsible
sources at fair and reasonable prices. This requirement is based on the three elements that form the
foundation of the government's pricing objective.
Prenegotiation objectives establish the government's initial negotiation position. The Contracting
Officer establishes prenegotiation objectives before the negotiation of any pricing action.
There are many methods for estimating costs in an equitable and consistently applied way. Some
cost estimating texts identify ten or more! Some common methods are:
Round-table
Comparison
Detailed - ANSWERRound Table
In a round table, experts are brought together to develop cost estimates by exchanging views and
making judgments based on knowledge and experience. This method is most commonly used when
there is little or no cost experience or detailed product information (e.g., specifications, drawings, or
bills of material).
Comparison
With the comparison method, costs for a new item are estimated using comparisons with the cost of
completing similar tasks under past or current contracts. Any differences are isolated and cost
elements applicable to the differences are deleted from or added to experienced costs. Comparisons
may be made at the cost element level or total price level. Adjustments may also be made for
possible upward or downward cost trends.
This method is most commonly used when specifications for the item being estimated are similar to
other items already produced or currently in production and for which actual cost experience is
available. - ANSWERDetailed
The detailed method is characterized by a thorough review of all components, processes, and
assemblies. It requires detailed information to arrive at estimated costs and typically uses cost data
derived from the accounting system, statistical records, and other sources.
This method is most commonly used when the required information is available and future
production potential warrants the cost of the detailed analysis required. It is the most accurate of the
,three methods for estimating direct cost. As you can imagine, it is also the most time consuming and
expensive.
Fairness to seller
Sellers need to be concerned about an unrealistic low price because of the risk.
Sellers need to be concerned about the market implications of a price that is too high.
Sellers need to be concerned about major mistakes in estimating costs.
Sellers need to be concerned about recovering buy-in losses. - ANSWERThe three market conditions
are Competition, Supply and Demand, and General Economic Conditions.
Pricing contracts separately
Business conditions can change the specifics of government contracting.
Market forces like competition and supply and demand must be considered.
Balancing of one contract against another contract in financial results is not allowed. - ANSWERThe
final government objective is Exclude Contingencies. This objective requires that contracts exclude
contingencies that cannot be reasonably estimated at the time of the award.
The definition of a contingency is a possible future event or condition arising from presently known
or unknown causes and the outcome cannot be determined at the present time. - ANSWERThere are
three types of analyses associated with analyzing contract costs. They are:
Price Analysis
Cost Realism Analysis
Cost Analysis
adequate price competition, which is a form of price analysis. Adequate price competition is an
exception to obtaining certified cost or pricing data - ANSWERhe detailed cost estimating method
estimates based on an analysis of the methods and materials required to complete each element of
the work required by the contract
, At the heart of this module is the Truth in Negotiations Act, which you will usually hear referred to as
"TINA."TINA is a public law enacted in 1962 for the purpose of providing full and fair disclosure by
contractors in the conduct of negotiations with the government. TINA requires:
Contractors and subcontractors submit certified cost or pricing data for negotiated procurements
over $2 million.
Downward adjustment to the contract price, including profit or fee, where it is determined that the
contract price was increased because the contractor submitted defective certified cost or pricing data
- ANSWERWhile TINA protects the government, the same laws that establish requirements for
certified cost or pricing data also provide for mandatory exceptions. Never require certified cost or
pricing data when an exception applies. Refer to FAR 15.403-1 and DFARS 215.403-1 to learn more.
Generally, except a procurement from TINA requirements if:
The negotiated price is based on adequate price competition
The price is set by law or regulation
The item is considered a "commercial" item (see FAR 2.101), unless it is a non-commercial
modification of a commercial item where the modification exceeds the greater of $2 million or 5% of
the contract price
The head of the contracting activity waives the requirement
TINA helps you as a Contracting Officer because it requires offerors to certify that their certified cost
or pricing data is current, accurate, and complete.
The certification TINA requires establishes information parity for the government when having to
negotiate fair and reasonable prices based on cost analysis, which in turn, helps you achieve your
ultimate goal of negotiating a fair and reasonable price.
For this reason, you must ensure that the certified cost or pricing data the contractor or
subcontractor submits is current, accurate, and complete as of the date of the agreement on price or,
if applicable, an earlier date agreed upon between the parties that is as close as practicable to the
date of agreement on price. - ANSWERTo obtain certified costs or pricing data
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