HEALTH AFFAIRS

1. TRICARE Management Activity HEALTH AFFAIRS Independent Government Cost Estimate (IGCE)

2. IGCE Definition • An IGCE is the Government’s estimate of the cost of a proposed contract action • FAR 15.404-1(a) requires contracting officers to ensure that the final contract price is fair and reasonable for all acquisitions through cost analysis • The IGCE is developed by the TMA requiring activity • An IGCE is based on: • Statement of Work (SOW) or Performance Work Statement (PWS), • Historical experience / costs • An IGCE must be developed without the influence of potential contractor’s marketing efforts

3. IGCE Purpose • The IGCE is a key program management document throughout the life cycle of the requirement • Properly developed IGCEs can provide program and task managers with a valuable tool to: • Defend their use of resources • Make trade-off decisions • Manage their acquisitions • IGCEs are often the best estimate available to resource managers who must ensure and verify that these resource requirements are included in the budget and managed to support the acquisition

4. IGCE Best Practices • Form a Team Early • Users, acquisition managers, resource managers, technical experts, analysts, etc… • For complex acquisitions get a cost analyst involved • Team members • Provide functional and technical expertise • Excellent source of historical data and projections • Use a Structured Approach • Work Breakdown Structure (WBS) • Cost Element Structure (CES) • Arrange by task • Models or analogies with other acquisitions • SOW/PWS, IGCE, and spend plans should all tie to this same structure and related cost elements.

5. IGCE Best Practices • Fully Document Assumptions and Basis of Estimates • Undocumented assumptions are often the cause of poor cost estimates or misunderstandings between the estimator and other members of the acquisition team • The Basis of Estimate (BOE) and its supporting documentation captures how the estimate was built and can be an important tool to be used by the Contracting Officer for negotiation • Key questions to ask before using any IGCE: • How was the estimate made? • What assumptions were made? • What information and tools were used? • Where was the information obtained? • A good IGCE clearly answers these questions

6. IGCE Best Practices Continued • Understand and Correctly Apply IGCE Results • Significant differences between the offeror's price and the IGCE may be a "Red Flag“ indicating a misunderstanding or disconnect between what is being offered and the requirement • Gross disparity may prompt the Government to: • Initiate and shape formal discussions • Reassess the SOW • Issue an amendment to the solicitation • Modify the contract • Cancel the requirement

7. IGCE Cost ElementsLabor • Direct Labor Cost is the cost of labor directly applied to producing the requirement • Unburdened rates - includes only salary • Burdened (fully loaded) rates - includes salary plus an allocation of costs for overhead, general and administrative costs, and profit • Using burdened rates simplifies the cost estimating process • The accuracy of this method depends on the availability of recent, competitively negotiated burdened rates that have similar skill requirements as your acquisition

8. IGCE Cost ElementsOther Direct Costs • Other Direct Costs (ODC) are all costs (other than labor and raw materials) used to satisfy the requirement: • Equipment • Supplies • Travel • IT support • Any other direct cost • Document the source or basis of any ODC estimates • Detailed equipment lists • Average costs of comparable equipment (from your market research) • Number and destination of travel requirements, airline cost, per diem, etc. • Do not use "Lump sum" ODC estimates • Lump sum estimates do not demonstrate IGCE validity and are useless in making program tradeoffs or evaluating proposed alternates

9. IGCE Template • Assumptions and Basis of Estimate Remarks • Period of Performance: • Where work will be performed: • Work week = • Work month = • Work year = • Local Travel Rate = • Local Telephone Cost = • Reproduction Cost = • Source of Labor Categories and Rates: • Other Assumptions and BOE Remarks IGCE Example

10. IGCE Template • Program Information • Program Name: • Action Officer (Program/Task Manager)/Phone: • Brief Description: • Budget Reference: • Labor by Individual Task • Labor category • Labor hours • Basis of estimate • Low rate / low amount • High rate / high amount • Labor Roll-Up for All Tasks • If any tasks are options, show them separately

11. IGCE Template • Other Direct Costs • Description • Quantity • Reason • Do not include surcharges in the IGCE • Many contracting agencies charge a fee (surcharge) for acquisition support • The contracting agency surcharge is a business cost, not directly attributable to the contract

12. IGCE Template • Coordination (signatures/phone/date) • IGCE Preparer • Resource Manager Coordination • Program Manager

13. Conclusion • Use a structured approach in developing your IGCE • A well-documented IGCE provides essential program cost information needed to evaluate and negotiate contract proposals • An IGCE is only as good as the quality and clarity of its underlying assumptions • The IGCE continues to serve as a key program management document throughout the life cycle of the requirement

14. Questions?