STUDENT GUIDE. CON 170 Fundamentals of Cost & Price Analysis. Unit 5, Lesson 6 Profit (Weighted Guidelines)

Transcription

1 STUDENT GUIDE CON 170 Fundamentals of Cost & Price Analysis Unit 5, Lesson 6 Profit (Weighted Guidelines) January 2017 CON 170, Unit 5, Lesson 6 Profit Page 1

2 STUDENT PREPARATION Required Student Preparation Read FAR , DFARS CPRG Vol 3, Chapter 11 Planned Academic Time Required: 4 hours Student performance will be informally evaluated during class discussions, and formally evaluated on Exam 2 CON 170, Unit 5, Lesson 6 Profit Page 2

3 Lesson Presentation When negotiating profit or fee, FAR requires contracting officers to use a structured approach. Per DFARS , DoD Contracting Officers shall use the weighted guidelines method as the structured approach for establishing profit or fee objectives, unless certain circumstances warrant another approach. This lesson introduces the requirements for using the weighted guidelines (WGL) method, provides six scenarios to establish prenegotiation profit objectives with the WGL, and drives practitioners to understand the step-by-step WGL instructions, established by DFARS and DFARS Pursuant to DFARS , contracting officers must complete the following DD Form 1547, Record of Weighted Guidelines Application. The DFARS PGI (3) states, the contracting officer shall use and prepare a DD Form 1547 whenever a structured approach to profit analysis is required by DFARS (b), and ensure the DD Form 1547 is accurately completed. Note, DFARS (c)(2)(E) states contracting officers shall document the profit analysis in the contract file. The DD Form 1547 is a critical element of the contracting officer s profit analysis. Generally, this form is completed and reviewed by the contracting officer before entering negotiations, reviewed and signed after negotiations, and included in the contract file pricing documentation. CON 170, Unit 5, Lesson 6 Profit Page 3

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6 This lesson will briefly explain each element of the DD Form 1547, then provide students with scenarios to practice completing the form. First, the buyer must complete blocks Blocks 1-12 will be filled in for the specific action you are working on, with the name of the contractor and their pertinent information. In this course, we will begin by completing blocks Each block s amount is the Government team s objective for the proposed amounts, based on the Government team s cost and/or price analysis. Block 20 is the Total Cost, (again, the Government team s objective for total cost) which becomes the basis for the profit objective analysis and many of the calculations that follow. Next, blocks must be completed per the specific instructions in DFARS This section of the DFARS is like a HOW-TO guide for completing the DD Form 1547 and should always be available and consulted when developing a profit/fee position. The following slides briefly explain the different considerations and calcualtions used in completing a WGL. However, the best way to really understand the method is practice so several exercise scenarios will follow to give you adequate practice with the weighted guidelines method. CON 170, Unit 5, Lesson 6 Profit Page 6

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9 More On Contract Type Risk and UCAs Remember the Mandatory assessment of reduced risk for costs incurred under UCAs that the DFARS requires us to consider? It is important to read and understand DFARS (d)(2) which requires contracting officer s to assess the extent to which costs have been incurred prior to definitization. In a situation where costs have already been incurred, there is inherently less risk. For that reason, this specific paragraph in DFARS requires CO s to consider that in their WGL calculations. This is NOT to say the contractor should be awarded NO profit, but the allowance for profit under the contract type risk calculation should be reduced accordingly. This lesson provides a brief overview of UCAs. As explained in DFARS subpart , a UCA is any contract action for which the contract terms, specifications, or price are not agreed upon before performance is begun; the contractor is authorized to begin work based on a letter contract or some other form of direction from the contracting officer which is not based on a firm, negotiated proposal. After the UCA is issued, the Government and contractor follow up by negotiating and awarding a definitized contract action, based on price and/or cost analysis, clear terms and conditions, and firm pricing arrangements. Definitization means the agreement on, or determination of, contract terms, specifications, and price, which converts the undefinitized contract action to a definitive contract. Under a UCA, the NTE value is typically a worst-case estimated dollar value. The NTE is provided by the contractor in a time-critical situation, when work must start as soon as possible, and there is not time for the contractor to conduct extensive cost estimates. Therefore, when working under a UCA, the contractor has little incentive to control costs, because all allowable costs will be paid up to the NTE amount. With respect to this risk, working under a UCA is similar to working under a cost-reimbursement contract, which presents lower risk to the contractor. Therefore, the Government should decrease contractor s profit objective to account CON 170, Unit 5, Lesson 6 Profit Page 9

10 for this lower cost risk. Per the DFARS, these considerations for the lower risk are required to be considered by contracting officers when evaluating a contractor s Contract Type Risk. CON 170, Unit 5, Lesson 6 Profit Page 10

11 Exercise: Calculating Profit by Completing a DD Form 1547 Learning Objective Calculate a profit objective with the WGL. Introduction This exercise will require the student to use the given procurement scenarios in order to calculate profit objectives on the DD Form Assessment This activity is not scored or graded. Student Instructions: You will now be given information for several procurement scenarios in order to calculate a profit objective for them. It is strongly advised that you WORK IN PENCIL when completing the DD Form the first few times! First, review the following slide and pages to understand the acquisition which is the basis for the scenarios you will analyze to calculate profit. The next few pages present ACME s proposal, with insight into the Government s cost and price analysis. Your task is to review the following proposal, and complete a DD Form 1547 for each of the six scenarios. CON 170, Unit 5, Lesson 6 Profit Page 11

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13 Proposal Rates and Factors: Base Year 1 Year 2 Year 3 Material Scrap CER 4.0% Engineering Escalation 9.0% 9.0% Design DL $75.83 $75.83 $82.65 $90.09 Integration DL $65.74 $65.74 $71.66 $78.11 Test DL $68.33 $68.33 $74.48 $81.18 Prog Spt DL $60.82 $60.82 $66.29 $72.26 FTE Hrs/Yr 2080 Prog Spt CER 5% Manufacturing Escalation 9.0% 9.0% Fabrication DL $56.90 $56.90 $62.02 $67.60 Assembly DL $55.98 $55.98 $61.02 $66.51 Quality Assurance DL $53.45 $53.45 $58.26 $63.50 Indirect Cost Rates Engineering OH 101% 103% 102% Manufacturing OH 204% 205% 206% General & Admin 15% 15.5% 15.25% FCCOM Factors Engineering Manufacturing General & Admin (TCI) CON 170, Unit 5, Lesson 6 Profit Page 13

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27 LESSON SUMMARY TLO: 5.6 Given a proposal evaluation scenario, calculate a negotiation profit objective using the Weighted Guidelines (WGL) method. ELO(s): Describe the WGL method Describe the key elements for calculating profit and fee objectives with the WGL Calculate a profit objective with the WGL CON 170, Unit 5, Lesson 6 Profit Page 27