FAR 15: Contracting by Negotiation

1. FAR 15: Contracting by Negotiation 15.4 Contract Pricing 15.5 PreAward, Award, and Postaward Notification, Protest and Mistakes 15.6 Unsolicited Proposals

2. Contract Pricing • Scope • Cost / price negotiations for contracts and subcontracts and contract modifications, including sealed bid awards • Definitions • Price = cost + fee or any profit • Subcontract – includes commercial item transfer between affiliates 15.400-15.401

3. Contract Pricing (cont.) • Policy • Establish fair and reasonable price (FRP) by requiring submission of certified cost or pricing data (CC/PD), or data other than CC/PD • Require only necessary data • Contract priced separately • Price evaluated without contingencies if contract terms will allow for adjustment 15.402

4. Prohibition on Obtaining CC/PD • Not obtained for contracts≤ SAT • Exceptions – CC/PD not required when: • CO determines adequate competition • Price based on law or regulation • Commercial item acquired • Waiver granted • Modifying contract or subcontract for commercial items • Other circumstances • Exercise of option at price established at contract award • Overrun funding or interim billing price adjustments 15.403-1, 15.403-2

5. Requiring Data Other Than CC/PD • Obtain from USG sources to determine FRP; if unavailable, use: • Offeror’s cost data; pricing data on same/similar items • Contract Pricing Reference Guide • Use offeror’s format; ensure data current or updated • Contractor ineligible if data not provided, unless HCA determines otherwise in best interest of USG • Commercial items • Price analysis required • Requests for sales data - limit to relevant time frame 15.403-3

6. Requiring CC/PD • Required if CO determines no exceptions apply • Threshold: $700,000 • CC/PD obtained before award of contract, subcontract or modification exceeding the threshold • Threshold amount includes both increases and decreases in price adjustments • Exception: HCA may authorize obtaining CC/PD for contracts > SAT < CC/PD Threshold • Required info • CC/PD or other than CC/PD • Certificate of CC/PD 15.403-4

7. Instructions for Submission • CO specifies in solicitation: • If CC/PD required • If Offeror may request exception • If data other than CC/PD required • If Pre- or post-award access to records required • What data format to use for CC/PD, other than CC/PD, or forward pricing rate agreements 15.403-5

8. Proposal Analysis Techniques • Purpose: ensure final, agreed-to price is fair and reasonable • Techniques • Price analysis – CC/PD not required (commercial) • Cost analysis – CC/PD required + price analysis for overall price • Cost analysis – data other than CC/PD • Cost realism – when FRP can’t be determined for commercial or non-commercial items; CR contracts • Expert advice as needed; conclusions not divulged to offeror without CO concurrence • Contract Pricing Reference Guides 15.404-1(a)

9. Price Analysis for Commercial and Non-Commercial items • Evaluate price w/o separate cost elements or profits • If no exception, CO obtains data, without certification, on prices for same or similar items • If FRP can’t be determined, get data other than CC/PD • Compare proposed prices received* • Compare historical prices - valid basis* • Parametric estimates to reveal inconsistencies • Competitive published prices vs independent USG estimates • Proposed prices compared to market research • Analysis of data other than CC/PD • Value analysis – relative worth 15.404-1(b)

10. Cost Analysis • Performed when CC/PD required • Evaluate separate cost elements & fee • Verify cost or pricing data • Effect of current practices on future costs? • Compare of proposed costs • Verify costs comply with applicable cost principles • Determine whether pertinent data missing and obtain from offeror • When evaluating subcontracts, compare make-or-buy program reviews 15.404-1(c)

11. Cost Realism Analysis • Independently evaluate whether cost elements realistic, USG requirements understood, elements consistent with methods/materials in proposal • Performed on Cost Reimbursable contracts • CO determines probable cost to add or reduce to adjust offeror’s proposal to realistic levels • May also be used on FPI or FP contracts if scope not understood, quality concerns, or quality/service shortfalls • Offered price may not be adjusted after analysis 15.404-1(d)

12. Technical Analysis • Determines need for and reasonableness of resources • Performed by specialists at CO request • At minimum, review types and quantity of materials, labor hours, labor mix • Analysis also used for evaluating prices of “similar to” or commercial items “of a type”, or items that require minor modifications 15.404-1(e)

13. Unit Prices • Reflect intrinsic value proportional to base cost, unless adequate competition • No allocation method distorting costs • Offerors must identify which items they will not manufacture or to which they don’t contribute significant value 15.404-1(f)

14. Unbalanced Pricing • Line items over/understated as determined by cost or price analysis • Risk indicators • Startup work, mobilization, first articles/testing • Base and option quantities • Price aggregate of est. quantities on separate line items • All proposals with separate line item pricing evaluated • CO considers risk in determining competitive range and source selection, USG price, and whether risk acceptable 15-404.1(g)

15. Data to Support Proposal Analysis • CO requests field pricing assistance when information available inadequate for FRP • Audit or technical reports, pricing practices, sales history, offeror’s other customary business practices • Pricing information directly to CO; becomes part of contract file • Cognizant audit office assistance – auditor responsible for scope/depth • Deficient proposals – data insufficient or offeror non-cooperative, CO to request data or elevate to next level 15.404-2

16. Subcontract Pricing Considerations • CO evaluates • Contractor/sub approved purchasing system? • Contractor analyzed sub’s costs and negotiated price before submitting proposal? • Separate analysis of prime and subcontractor’s proposals, including CC/PD • Prime or sub shall • Conduct price or cost analysis to establish reasonableness • Include results in price proposal 15.404-3

17. Subcontract Pricing Considerations (cont.) • If CC/PD required, Contractor or Sub shall obtain and analyze CC/PD from their respective subcontractors • Required for subcontracts lower of either • ≥$12.5M or • Both >$700K (CC/PD threshold) and >10% of prime contractor’s proposed price • Data must be current and accurate; updated by Prime during negotiations as necessary • If > one contender for specific scope, submit only most likely subcontractor’s CC/PD 15.404-3

18. Profit • Establishing profit or fee portion of prenegotiation objectives based on cost analysis • Potential total remuneration > allocable costs (not net income) • USG estimate of allowable costs to be incurred • Policy: structured approach ensures relevant factors considered • Noncompetitive awards >$100K totaling $50M/year must use structured approach, unless exemption approved 15.404-4(a) and (b)

19. Profit (cont.) • CO responsibilities: • If negotiation not based on cost analysis, profit analysis not required • Used structured approach or profit analysis factors for prenegotiation objectives • Contractor acquired equipment/property and facilities cost of capital excluded from analysis • Statutory limits • CPFF experimental or R&D: 15% • A/E services for public works or utilities: 6% • CPFF all others: 10% • (Percentage of estimated costs excluding fee) 15.404-4(c)

20. Profit (cont.) • Profit-analysis factors • Contractor effort • Contract cost risk • T&M, Labor Hour, FFP, and LOE term treated as CPFF contracts by CO for evaluation purposes • Federal socioeconomic programs • Capital investments • Cost control / past accomplishments • Independent development • Additional factors may be added by agency 15.404(d)

21. Price Negotiation • Purpose to reach agreement on FRP • If expert recommendations not incorporated, CO must justify in writing • Overall price USG pays is primary concern • Greatest incentive for contractor efficiency • Profit/fee not negotiated without concurrent negotiation of cost and type of contract • If contractor unreasonable, CO refers contract action to level above CO 15.405

22. Documentation • Prenegotiation Objectives • Results of CO analysis • Established before negotiating price • Cost analysis – issues, objectives, profit/fee • Certificate of Cost or Pricing Data • When CC/PD required, certificate also required and part of contract file • Certificate applies to data, not contractor’s judgment • Concurrence on cutoff dates for data • Submitted with proposal • Updated as necessary prior to final price negotiations • Later exception: certificate not submitted, data not certified 15.406-2

23. Documenting the Negotiation • Price negotiation memorandum • Purpose, acquisition, parties involved, contractor systems considered • If threshold exceeded, exception for CC/PD • If CC/PD required, how used, whether accurate, whether exception applied • Proposal summary, field pricing recommendations, USG position and any variance in final • Prenegotiation objectives – initial and final • Impact of any congressional or agency direction • Prenegotiation objective profit/fee – initial and final position • Documentation of FRP • Field pricing assistance – CO sends copy of documentation to office providing assistance 15.406-3

24. Special Cost or Pricing Areas • Defective CC/PD • Before award – notify contractor, corrected, documented • After award – Per contract clauses, USG entitled to price adjustment including profit/fee • Offset for understated data up to amount of USG claim of overstated pricing, if contractor entitled and CC/PD available but not submitted • Disallowed if data known to be understated, price wouldn’t have increased • Overpayment exists only if made for accepted supplies or services • Interest charged for each quarter from time of overpayment to repayment • Penalty for known defective data submission is equal to amount of overpayment • Demand letter issued by CO 15.407-1

25. Special Cost or Pricing Areas (cont.) • If CO learns of defective data, can request audit • If defective, CO gives contractor opportunity to respond; FAPIIS updated if final determination changed • Right to reduced price whether subcontract a cost estimate or firm agreement • Defective subcontract data adjustment limited to ∆ between price used for prime and actual subcontract or actual cost to contractor, if no subcontract awarded • CR/FP except FFP and FP with economic price adjustment: disallowance or non-recognition of costs 15.407-1

26. Make-or-buy Programs • Contractor ensures lowest cost and risk to USG • USG may reserve right to review/agree • Acquisitions requiring make-or-buy • CC/PD required and value >$12.5M, except R&D or no follow-on production • Under $12.5M – if CO determines info necessary, reasons documented • Solicitation must include requirement and evaluation factors 15.407-2(a),(b),(c),(d)

27. Make-or-buy Programs (cont.) • Program requirements in proposal • Items and work included, categorized by ‘make’ or ‘buy’; • Production location, whether near labor surplus area; • Identification of subcontractors, location, size • Whether make-or-buy decision should be deferred • Evaluation, negotiation • Before contract award; no ‘make items’ if otherwise available unless lower cost to USG • Incorporation in contracts for major systems or other supplies/services if cost reimbursable or contractor cost share <25% 15.407-2(e),(f),(g)

28. Forward Pricing Rate Agreements • Any FPRA must be identified in proposal and latest cost or pricing data updated regularly • Negotiated with CO • If changed condition affects agreement, FPRA revised • Certification of FPRA not required unless used to price agreement requiring CC/PD 15.407-3

29. Should-cost Review • Form of cost analysis which doesn’t assume historical costs reflect efficiency • Promotes improvements to reduce cost • Program review • Evaluate significant elements of direct costs • Separate audit required • CO determines which operations have greatest cost savings potential • Team report required • Identified in acquisition plan and solicitation • Estimating Systems – cognizant audit agency • Auditor provides corrective action recommendations 15.407-4

30. Should-cost Review Overhead review • Evaluate and negotiate FPRA • Separate audit report required • Evaluate significant indirect cost elements in depth • Identify, recommend corrective actions for inefficient practices • No separate report required if performed with program should-cost review • Follow-up plan to monitor corrections 15.407-4(c)

31. Table 15-2 – Instructions for submitting CC/PD • Requirement met when all reasonably available data submitted • Requirement for submission continues until price negotiated or earlier date established • Include index of all certified data and information accompanying proposal, annotate future revisions • Explain estimating process, identify contingencies, include cost element breakdown • Identify preaward costs incurred • Include FPRA, if negotiated • Submit Certificate of Current Cost or Pricing Data 15.408 - Table 15-2

32. Table 15-2 • Cost Elements • Materials & services • Subcontractor cost analyses, if threshold exceeded; prime responsible for updating subcontractor data • Adequate price competition (subs, purchase orders, materials, etc.) • Direct Labor • Indirect Costs • Other costs • Royalties, if >$1500 • Facilities Capital Cost of Money, if claimed

33. Preaward, Award, and Postaward Notifications, Protests and Mistakes • Applies to competitive proposals • Notifications to unsuccessfulofferors • Preaward Notices • Notice of exclusion from competitive range; basis for determination, proposal revision not considered • Small business programs: • Notified prior to award, after completion of negotiations, type of small business selected • Identify successful offeror, no subsequent revisions considered; no response required unless SBC status of apparent awardee challenged • Notice not required if urgency necessitates award, or contract is under 8(a) program 15.503(a)

34. Postaward Notices • 3 days after date of contract award, CO issues written notification to those in competitive range not selected or not previously notified • Notice also made on request for proposals under simplified acquisition procedures • Information in notice: • Number of offers solicited and proposals received • Name and address of award recipients, including offered items/quantity/unit prices • Reason proposal not accepted • No confidential business information revealed 15.503(b)

35. Award to Successful Offeror • If award includes information different from proposal, both parties sign • If award for less than all possible items, notice states USG may make subsequent awards within proposal acceptance period • If USG forms OF 307, SF 26, or SF 33 not used, USG acceptance statement must be included with CO name, signature, date; likewise, contractor must sign if award contains different information than proposal 15.504

36. Preaward Debriefing of Offerors • May request debriefing within 3 days of notice if excluded from competitive range • May be delayed until after award, but can affect protest timliness • No more than one debriefing per proposal • CO should debrief in timely manner, but may refuse if in USG’s best interest • Debriefings chaired by CO and include • Evaluation of significant elements, rationale for elimination, reasonable responses to questions • Do not disclose number or identity of other offerors, content, ranking, evaluation or other prohibited information 15.505

37. Postaward Debriefing of Offerors • Agency should receive request for debriefing within 3d of unsuccessful offeror’s receipt of notice • Debrief occurs within 5 days of receipt of request • If late, not entitled to debrief • Delayed debriefing or untimely request doesn’t automatically extend protest deadline • Debrief format determined by CO • Evaluation of weaknesses, cost or price, technical rating; offerors’ ranking; rationale for award, make/model of items supplied; responses to questions • Excludes specific comparisons, business confidential information 15.506

38. Protests Against Award, Mistakes • Handled per Part 33 • If protest causes agency within one year of award: • Issue new solicitation • All offerors receive debriefing and other non-proprietary information given to original offerors • Request revised proposals • Copy of debriefing and other non-proprietary information provided to offerors in the competitive range of the original proposal • If mistakes disclosed after award, process at 14.407-4 followed. 15.507

39. Unsolicited Proposals • Responses encouraged to to BAA, SBIR, STTR, or Program R&D announcements or any government-initiated solicitation or program • Results in contract for R&D • Such proposals must be • Unique and innovative, independently developed • Sufficiently detailed to evaluate agency benefit • Evaluated for energy-savings performance 15.601-15.603

40. Agency Points of Contact • Agency POC must make following available: • Definition and content for acceptability • Requirements for responsibility (9.1) and organizational COI (9.2) • Preferred methods and procedures for submittal • Names of agency POCs • Information sources • Instructions for marking proprietary info • Only cognizant CO has authority to bind USG 15.604

41. Content of Unsolicited Proposals • Basic information • Contact information, date, signature, other agencies, proprietary data identification • Technical information • Title and abstract, objectives, key personnel, agency support needed • Supporting information • Price or total estimated costs, period and duration, type of preferred contract, organizational description, agency personnel contacted 15.605

42. Agency Procedures • Agency must control receipt, evaluation, disposition of proposals • Establish agency points of contact • Receipt and initial review • Is proposal valid, suitable, relevant, sufficient to evaluate merit, properly approved, proper marking requirements • If rejected, agency POC notifies offeror • Evaluation • Methods, merit, contribution, capabilities, key personnel skills, realistic cost 15.606

43. Criteria for Acceptance and Negotiation - Unsolicited Proposal • Return if • Available elsewhere without restriction, resembles pending competitive acquisition, not relevant to mission or not innovative • Negotiate sole source if • Favorably evaluated, justification approved, agency funds, CO complied with synopsis requirements • USG prohibited from • using proposal as basis for any solicitation w/o permission or from disclosing restrictively marked information 15.607, 15.608

44. Limited Use of Data • Offerormay restrict use if marked appropriately, otherwise proposal will be returned • Agency POC routes with restriction unless offeror specifically states no restrictions imposed • If unrestricted and evaluation outside USG necessary, proposal data may not be disclosed to others • If restricted, offeror must agree to external review • If not an educational/non-profit institution, written permission required before release for evaluation • Written concurrence from non-USG evaluator not to disclose 15.609