• reviewandevaluationoftheseparatecostelementsandprofitinanofferor’sorcontractor’sproposal(includingcostorpricingdataorinformationotherthancostorpricingdata),andtheapplicationofjudgementto

determinehowwelltheproposedcostsrepresentwhatthecostofthecontractshouldbe,assumingreason

ableeconomyandefficiency(FAR15.404(c)(1)).

•

•6PriceandCostAnalysisCompared PriceAnalysisistheprocessofexaminingandevaluatingaproposedpricewithoutevaluatingitsseparatecostelementsandproposedprofit. Determineswhetherthepriceisfair

andreasonable. CostAnalysis Evaluatestheseparatecostelements,profit,andfacilitiescapitalcostofm

oney(ifproposed). Usedtoevaluate/determineanyorallofthefollowing: costand/orpricereasonableness costrealism mostprobablecostand/orprice Itisthemorecostlymethodintermsoftimeandmanpo

wer.

Cost analysis

• Evaluates the separate cost elements , profit , and facilities capital cost of money (if proposed).

Used to evaluate/determine any orall of the following :

• Cost and/or price reasonableness

• Cost realism

• Most probable cost and/ or price

• Itisthemorecostlymethodintermsoftimeandmanpower.

Price analysis

• Istheprocessofexaminingandevaluatingaproposedpricewithoutevaluatingitsseparatecostelementsandproposedprofit.

• Determineswhetherthepriceisfairandreasonable.

•7CostAnalysis:Whentoapplyit. Itisperformedifcertifiedcostorpricingdataarerequired. Itmaybeusedtoevaluatei

nformationotherthancostorpricingdata,e.g.,non-certifiedcostdata. Normally,itisnotneededifadequatepricecompetitionexists.Inthiscase,itstillmaybeusedifthepriceisdeterminedtobeunreasonableoryouareconsideringacostrealismevaluation[seeFAR15.305(a)(1)]. Costanalysisisoneoftheapproachesthatshouldbeusedwhenacostrealismevaluationisrequired. Whenyouperformacostanalysis,youshouldalsoincludeapriceanalysistoverifypricer

easonableness. •Section2DefiningCostsPerformingaCostAnalysisExampl

es:ProposedPricebyMajorCostElement

CostAnalysis:FirstStep Pre-solicitationinvolvementbytheprice/costanalyst(FSO)andengineer(ESO)isrecommended Price/costinput SectionBset-up,Price/CostEvaluationTemplate,SectionLprice/costdatarequirements,andSectionMprice/costevaluationfactors Engineeringandprice/costinput SOW/PWS Readthesolicitation,sectionB,andSOW/PWS Whatisbeingpurchased? NotaseasyaslookingattheSectionBCLINsand/orSLINs Whatarethesolicitationrequirementsforthecontractorandthegovernment?

• CostAnalysis:SecondStep Readthecontractor’sproposalprice/costnarrative Itwilldiscussthecontractor’sproposalstructure,assumptions,rationale,etc. Thelengthandqualitywillvary Animportantsourceofproposalinformation Study/knowtheproposalset-up Checkthemath: Isthearithmeticcorrect?TheSectionBunitpricesmultipliedbythequantitiesresultinthetotalamounts? Dotheamounts“foot”?Dotheyadd-upand/orcalculatecorrectly? Dothenumbers“track”?Canthefiguresbetracedamongthesupportschedules?

•17CostAnalysis:ThirdStep Whatisthebasisoftheproposedcost? Howdidyoucomeupwiththisnumber? Whatisyourrationale? Whatareyourassumptions? Whatarethecalculationsyouused? Thecontrac

tor’sresponsesprovidetheanswertothequestion: Whyisthispriceand/orcostreasonable? •18CostEstimatingMethodsUsedbytheContractor Commonmethods: RoundTable:Expertsgettogeth

erandmakejudgmentsonprojectedcosts Comparison:Adjustmentsaremadetoapastorcurrentitemtoderivethecost Parametric:Projectionsarebasedonformulas,orcostestimatingrelationships Detailed:Athoroughreviewismade,withdetailedinformationcomprisingtheestimateAnofferormayuseanygenerall

yacceptedestimatingmethodsthatareequitableandconsistentlyappliedinsimilarsituations. •19BasicCostElementBreakdownProposedPriceByCostElementItem/Service:RFP:CLIN:SLIN:Date/Tim

e:4/21/200613:43FileName:BasePeriodCostElement:HoursRateBaseAmountMaterial:DirectMaterial100Scrap/Discount/Miscellaneous1%1001MaterialHandling2%1012TotalMaterial103DirectLabor:LaborCategory155.0025LaborCategory262.0012Total113.3637FringeBenefits3%371Overhead4%382

OtherDirectCosts(ODC's)Subcontracts100Travel50TotalODC's150Subtotal193G&AExpenses5%19310TotalCosts202Profit1%2022UnitPrice204Quantity2TotalPrice409

•

• CostAnalysis:ThirdStep Whatisthebasisoftheproposedcost? Howdidyoucomeupwiththisnumber?Whatisyourrationale? Whatareyourassumptions? Whatarethecalculationsyouused? Thecontracto

r’sresponsesprovidetheanswertothequestion: Whyisthispriceand/orcostreasonable? •18CostEstimatingMethodsUsedbytheContractor Commonmethods: RoundTable:Expertsgettogeth

erandmakejudgmentsonprojectedcosts Comparison:Adjustmentsaremadetoapastorcurrentitemtoderivethecost Parametric:Projectionsarebasedonformulas,orcostestimatingrelationships Detailed:Athoroughreviewismade,withdetailedinformationcomprisingtheestimateAnofferormayuseanygenerall

yacceptedestimatingmethodsthatareequitableandconsistentlyappliedinsimilarsituations. •19BasicCostElementBreakdownProposedPriceByCostElementItem/Service:RFP:CLIN:SLIN:Date/Tim

e:4/21/200613:43FileName:BasePeriodCostElement:HoursRateBaseAmountMaterial:DirectMaterial100Scrap/Discount/Miscellaneous1%1001MaterialHandling2%1012TotalMaterial103DirectLabor:LaborCategory155.0025LaborCategory262.0012Total113.3637FringeBenefits3%371Overhead4%382

OtherDirectCosts(ODC's)Subcontracts100Travel50TotalODC's150Subtotal193G&AExpenses5%19310TotalCosts202Profit1%2022UnitPrice204Quantity2TotalPrice409

•