PREPARING COST PROPOSALS

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

TOPICS

Vital Elements of A Proposal; Proposal Examples, including

Overhead Rate Calculations General & Admin (G&A) Rate Calculation Unallowable Costs;

Preparing For an Audit; Common Deficiencies Found in Proposals.

VITAL ELEMENTS OF A PROPOSAL

Summary of Total Cost by Element

Cross-referenced to each line item

Breakdown of Labor (FAR 15.408, Table 152 II.B.)

Hours Rates and Costs by Appropriate Category Types, Quantities, Cost FAR 15.408, Table 15-2 II.A.

Consolidated Priced Bill of Materials

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 PROPOSAL
XYZ Technologies, Inc. Washington, DC Proposal Submitted in Response to RFP #IRS-Show-Me-The -Money

ELEMENT OF COST Engineering Labor Production Labor Direct Labor Overhead@60.0%

AMOUNT $400,000 30,000 25,800

REFERENCE Schedule 1 Schedule 1 Schedule 2

Material
Material Handling Overhead@5.0% Subtotal G&A @8.0% Estimated Cost Profit @10.0% Total Price

110,000
55,000 620,800 49,664 670,464 67,046 $737,510

Schedule 3
Schedule 4

Schedule 5

SAMPLE PROPOSAL
XYZ Technologies, Inc. Washington, DC Proposal Submitted in Response to RFP #IRS-Show-Me-The -Money

Engineering Labor Cost

SCHEDULE 1

Labor Category Program Manager Sr. Engineer Jr. Engineer Total Eng Labor

Rate $40.00 28.00 24.00

Hours 1,000 9,000 4,500

Total $ 40,000 252,000 108,000 $400,000 ======= Total $ 20,000 10,000 $ 30,000 ======

Production Labor Cost

Labor Category Rate Fabrication $10.00 Assembly 8.00 Total Production Labor

Hours 2,000 1,250

SAMPLE RFP COST PROPOSAL

MAINTENANCE SUPPORT CONTRACT

SEE HANDOUT

PROPOSAL - EXERCISE
You 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 EXERCISE Small Company, Inc. Proposal for Technical Support Services

Proposed Technical Labor Labor Overhead Subtotal Subcontract Service Travel Total Cost Input G&A Total Cost Profit Total Price $ 75,000 39,937 $114,937 72,000 3,000 $189,937 54,004 $243,941 24,394 $ 268,335 =======

Reference Schedule 1 Schedule 2 Schedule 3 Schedule 4 Schedule 2

PROPOSAL EXERCISE Small Company, Inc.

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.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services
Schedule 1 Hours 2,500 Rate $30.00 Amount $75,000

Technical Labor (Note 1)

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.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services
Schedule 2

FY 2009 Budget
Direct
Admin Labor Depreciation Fringe Benefits Interest Office Supplies Tech Labor Rent Travel Telephone Payroll Taxes Subcontracts Miscellaneous Total Total $20,000 2,000 5,000 8,000 5,000 150,000 10,000 5,000 1,000 6,000 72,000 60,000 $344,000 Cost Overhead G&A 5,000 15,000 2,000 4,000 1,000 5,000 150,000 3,000 10,000 2,000 1,000 6,000 45,000 80,000 14,000 30,000 1,000 9,000 Unallowable

8,000

72,000 225,000

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services

Overhead Rate Calculation:

Overhead Pool = $80,000 Direct Labor == 53.33% $150,000

Schedule 2

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.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services

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.

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services

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?

PROPOSAL EXERCISE Small Company, Inc. Proposal for Technical Support Services
TRAVEL
Cost Element Airfare Car Rental Lodging Incidentals Mileage Per Diem #of Trips 3 1 3 3 3 3 #of days n/a 2 3 3 n/a 3 Cost $429 55 120 40 35 40 Schedule 4

Total NOTES $1,287 1 105 2 360 3 120 4 35 5 120 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 companys 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

COMMON DEFICIENCIES

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

REFERENCES

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

QUESTIONS AND ANSWERS