TABLE OF CONTENTS
SUBPART 215.4--SOLICITATION AND RECEIPT OF PROPOSALS AND QUOTATIONS
215.401 Applicability.
215.406-2 Part I--The Schedule.
215.414 Forms.
SUBPART 215.6--SOURCE SELECTION
215.605 Evaluation factor and subfactors.
215.607 Disclosure of mistakes before award.
215.608 Proposal evaluation.
215.611 Best and final offers.
215.613 Alternate source selection procedures.
215.613-70 Four-step source selection procedures.
SUBPART 215.7--MAKE-OR-BUY PROGRAMS
215.704 Items and work included.
SUBPART 215.8--PRICE NEGOTIATION
215.804 Cost or pricing data and information other than cost or pricing data .
215-804-1 Prohibition on obtaining cost or pricing data.
215.804-3 Exemptions from or waiver of submission of certified cost or pricing data.
215.804-6 Procedural requirements.
215.804-7 Defective cost or pricing data.
215.804-8 Contract clauses.
215.805 Proposal analysis.
215.805-5 Field pricing support.
215.805-70 Cost realism analysis.
215.806 Subcontract pricing considerations.
215.806-1 General.
215.806-3 Field pricing reports.
215.807 Prenegotiation objectives.
215.808 Price negotiation memorandum.
215.809 Forward pricing rate agreements.
215.810 Should-cost review.
215.810-2 Program should-cost review.
215.810-3 Overhead should-cost review.
215.811 Estimating systems.
215.811-70 Disclosure, maintenance, and review requirements.
215.870 Reserved.
215.871 Reserved.
215.873 Estimated data prices.
TABLE OF CONTENTS (Continued)
SUBPART 215.9--PROFIT
215.902 Policy
215.903 Contracting officer responsibilities.
215.905 Profit-analysis factors.
215.905-1 Common factors.
215.970 DD Form 1547, Record of Weighted Guidelines Method Application.
215.971 Weighted guidelines method.
215.971-1 General.
215.971-2 Performance risk.
215.971-3 Contract type risk and working capital adjustment.
215.971-4 Facilities capital employed.
215.972 Modified weighted guidelines method for nonprofit organizations.
215.973 Alternate structured approaches.
215.974 Fee requirements for cost-plus-award-fee contracts.
215.975 Reporting profit and fee statistics.
SUBPART 215.10--PREAWARD, AWARD, AND POSTAWARD NOTIFICATIONS, PROTESTS, AND MISTAKES
215.1001 Notifications to unsuccessful offerors.
PART 215 CONTRACTING BY NEGOTIATION
SUBPART 215.4--SOLICITATION AND RECEIPT OF PROPOSALS AND QUOTATIONS
[see AFAC 92-49,B1]
215.401 Applicability.
See 225.872 for additional guidance on procedures for purchasing from qualifying countries.
215.406-2 Part I--The Schedule.
(g) When a contract contains both fixed-priced and cost-reimbursement line items or subline items, the contracting officer shall provide in Section B, Supplies or Services and Prices/Costs, an identification of contract type specified for each contract line item or subline item to facilitate appropriate payment.
215.414 Forms.
This does not preclude use of letter RFPs and RFQs, provided their use complies with other requirements of the FAR and this regulation.
SUBPART 215.6--SOURCE SELECTION
(b)(2)(A) In acquisitions which require use of the clause at FAR 52.219-9, Small, Small Disadvantaged and Women-Owned Small Business Subcontracting Plan, the extent of participation of small and small disadvantaged businesses in performance of the contact shall be addressed in source selection.
(1) For acquisitions other than those based only on cost or price competition, the contracting officer shall evaluate the extent to which offerors identify and commit to small business and to small disadvantaged business, historically black college and university, or minority institution performance of the contract, whether as a joint venture, teaming arrangement, or subcontractor.
(2) Criteria for evaluation may include--
(i) The extent which such firms are specifically identified in proposals;
(ii) The extent of commitment to use such firms (for example, enforceable commitments are to be weighted more heavily than non-enforceable ones);
(iii) The complexity and variety of the work small firms are to perform;
(iv) The realism of the proposal;
(v) When not otherwise required by 215.608(a)(2), past performance of the offerors in complying with requirements of the clauses at FAR 52.219-8, Utilization of Small, Small Disadvantaged and Women-Owned Small Business Concerns, and 52.219-9, Small, Small Disadvantaged and Women-Owned Small Business Subcontracting Plan; and
(vi) The extent of participation of such firms in terms of the value of the total acquisition.
(3) Proposals addressing the extent of small and small disadvantaged business performance may be separate from subcontracting plans submitted pursuant to the clause at FAR 52.219-9 and should be structured to allow for consideration of offers from small businesses.
(4) When an evaluation includes the criterion in paragraph (b)(2)(A)(2)(i) of this section, the small, small disadvantaged, or women-owned small businesses considered in the evaluation shall be listed in any subcontracting plan submitted pursuant to FAR 52.219-9 to facilitate compliance with 252.219-7003(g).
(B) The costs or savings related to contract administration and audit may be considered when the offeror's past performance or performance risk is likely to result in significant costs or savings.
(c) In competitive acquisition of services--
(i) Evaluation and award should be based, to the maximum extent practicable, on best overall value to the Government in terms of quality and other factors.
(ii) The weighting of costs must be commensurate with the nature of the services being acquired.
(A) It may be appropriate to award to an offeror, based on technical and quality considerations, at other than the lowest price when--
(1) The effort being contracted for departs from clearly defined efforts; or
(2) Highly skilled personnel are required.
(B) It may be appropriate to award to the technically acceptable offeror with the lowest price when--
(1) Services being acquired are of a routine or simple nature;
(2) Highly skilled personnel are not required; or
(3) The product to be delivered is clearly defined at the outset of the acquisition.
215.607 Disclosure of mistakes before award.
(c)(3) The designee is the head of the contracting activity, who may redelegate this authority to the chief of the contracting office.
(a)(1) Contracting officers shall ensure that the use of uncompensated overtime in contracts to acquire services on the basis of the number of hours provided (seeFAR 37.115) will not degrade the level of technical expertise required to fulfill the Government's requirements. When acquiring such services, contracting officers shall conduct a risk assessment, and evaluate for award on that basis, any proposals received that reflect factors such as--
(i) Unrealistically low labor rates or other costs that may result in quality or service shortfalls; and
(ii) Unbalanced distribution of uncompensated overtime among skill levels and its use in key technical positions.
(2) When a past performance evaluation is required by FAR 15.605, and the solicitation includes the clause at FAR 52.219-8, Utilization of Small, Small Disadvantaged and Women-owned Small Business Concerns, the evaluation shall include the past performance of offerors in complying with requirements of that clause. When a past performance evaluation is required by Far 15.605, and the solicitation includes the clause at FAR 52.219-9, Small, Small Disadvantaged and Women-owned Small
Business Subcontracting Plan, the evaluation shall include the past performance of offerors in complying with requirements of that clause.
(b) Except for determinations based on violations or possible violations of Section 27 of the Office of Federal Procurement Policy (OFPP) Act, and unless otherwise specified in department/agency regulations, the contracting officer shall make the written determination. Determinations based on violations or possible violations of Section 27 of the OFPP Act shall be made as specified in FAR 3.104.
215.611 Best and final offers.
(c) (i) Before requesting an additional (second or subsequent) best and final offer, the contracting officer shall obtain approval from--
(A) The source selection authority and the senior procurement executive (SPE) for competitive negotiated acquisitions under formal source selection (see FAR 15.612). The SPE may delegate this authority to a level no lower than the head of the contracting activity.
(B) The head of the contracting activity (HCA) for all other competitive negotiated acquisitions. The HCA may delegate this authority to the chief of the contracting office.
(ii) Each HCA shall establish a system for reporting and documenting additional requests for best and final offers. Systems shall include as a minimum--
(A) The total number of competitive negotiated acquisitions awarded;
(B) The number of those acquisitions for which an additional request for best and final offers was approved and issued; and
(C) The reasons for approving each additional request for best and final offers.
(iii) To ensure that additional requests for best and final offers are used only when necessary and unavoidable, HCAs shall--
(A) Periodically analyze data collected under paragraph (c)(ii) of this section;
(B) Take appropriate corrective action, e.g., training, revising approval levels; and
(C) Provide periodic summary reports to the SPE as specified in department/agency regulations.
215.613 Alternate source selection procedures.
215.613-70 Four-step source selection procedures.
(a) General.
The four-step source selection procedure is designed for those situations where the Government wishes to focus on technical excellence. Proposals are evaluated, a
competitive range established, and an apparent successful offeror selected without discussions of proposal deficiencies (a deficiency is defined as that part of an offeror's proposal which would not satisfy the Government's requirements). Negotiations are conducted only in the final step and only with the apparent successful offeror.
(b) Applicability.
Four-step source selection procedures may be used for--
(1) Competitively negotiated research and development acquisitions with an estimated value of $2 million or more; or
(2) Other acquisitions as permitted by department/agency regulations, except those in paragraph (c) of this subsection.
(c) Restrictions.
Four-step source selection procedures shall not be used for acquisitions which--
(1) Will require extensive discussion and negotiations;
(2) Use the authority of FAR 6.302-2;
(3) Are solely for personal or nonpersonal services;
(4) Are for architect-engineer services; or
(5) Have an estimated value of less than $2 million.
(d) Presolicitation.
Establish early and open dialogue with prospective offerors to ensure their understanding of the Government's needs, since the evaluation will be conducted with limited discussions and without disclosing deficiencies in offeror proposals. Ways of establishing this dialogue are--
(1) Presolicitation notices;
(2) Presolicitation conferences;
(3) Preproposal conferences;
(4) Solicitations for information or planning purposes; and
(5) Tailoring of specifications.
(e) Solicitations.
Include the following special provisions in four-step source selection solicitations--
(1) Explanation of the four-step concept and procedures;
(2) Statement regarding the relative importance of technical/system performance criteria;
(3) Notification that the contracting officer may reject proposals with unrealistic technical, schedule, cost, or price commitments since unrealistic commitments reflect an inherent lack of technical competence or indicate a failure to comprehend the complexity and risks of the requirements;
(4) Schedule of planned source selection events, including specific dates for the sequential submission of separate technical and cost proposal;
(5) Requirement for the technical proposal to include--
(i) Identification, when appropriate, of trade-offs (with illustrative cost estimate impacts) among performance, production costs, operating and support costs, schedule and logistics support factors; and
(ii) Information showing that the goals for design to cost and operating and support costs (when used) will be achieved when the item enters production;
(6) Requirement for the cost proposal to include detailed cost information supporting the technical proposal and the cost factors in the evaluation criteria;
(7) Statement that both technical and cost discussions will be limited as described in paragraphs (f) and (g) of this subsection; and
(8) Notification that the contracting officer will only negotiate with the selected offeror, and that offerors' initial technical and cost proposals should be their best offer.
(f) Step one - evaluation of technical proposals.
(1) The sequence of step one--
(i) Evaluate all technical proposals;
(ii) Conduct limited discussions with all offerors; and
(iii) Ask for any necessary clarifications and additional supporting data when necessary (normally, ask that this be submitted with the cost proposal).
(2) In conducting step one--
(i) Limit discussions to only what is necessary to ensure that both parties understand each other;
(ii) Do not tell offerors about deficiencies in their proposals; and
(iii) Provide written clarification to all offerors when it appears the Government's requirements have been misinterpreted.
(g) Step two - evaluation of cost proposals.
(1) The sequence of step two--
(i) Request cost proposals;
(ii) Evaluate all cost proposals;
(iii) Establish the competitive range;
(iv) Eliminate those proposals outside the range and advise those offerors;
(v) Conduct limited discussions with remaining offerors; and
(vi) Eliminate proposals which cannot be made acceptable and advise the offerors.
(2) In conducting step two--
(i) Limit discussions to--
(A) Clarifying inconsistencies or correcting mathematical errors;
(B) Correlating cost elements with technical effort in order to assess cost realism; and
(C) Ensuring a complete understanding of the Government's requirements, the offeror's offer, and other contract terms;
(ii) Do not tell an offeror that any of its cost elements are either too high or too low; and
(iii) Follow the guidelines in paragraph (f) of this subsection if further discussions of technical proposals or clarifications are required.
(h) Step three - common cut-off and selection of an offeror for final contract negotiations.
(1) The sequence of step three--
(i) Notify offerors of the common cut-off date for receipt of best and final offers (technical and cost);
(ii) Evaluate the offers;
(iii) Select the best offeror (see paragraph (h)(2)(iv) of this subsection for multiple sources);
(iv) Tell the selected source that the decision is conditional based on negotiation of a definitive contract within the time period prescribed by the source selection authority; and
(v) Advise the other offerors of the source selected.
(2) In conducting step three--
(i) Remind offerors, when notifying them of the common cut-off date, that any changes incorporated in the final proposal must be fully documented;
(ii) Do not accept lump sum reductions in final cost proposals without supporting data;
(iii) Do not request additional best and final offers without the approval required by 215.611(c); and
(iv) Do not select two or more offerors, rather than a single source, for final contract negotiations, unless the HCA makes a written determination that final selection of a single source should not be made until the prospective contracts have been tentatively negotiated.
(i) Step four - final negotiations and contract award.
(1) The sequence of step four (single selectee)--
(i) Negotiate the final contract price, terms, and conditions; and
(ii) Award the contract.
(2) The sequence of step four (multiple selectees)--
(i) Negotiate tentative final contract terms and conditions;
(ii) Select the best source; and
(iii) Award.
(3) In conducting step four--
(i) Complete negotiations and award the contract within the time prescribed by the source selection authority;
(ii) Terminate negotiations and make a new source selection decision if the condition in paragraph (i)(3)(i) cannot be met;
(iii) Do not permit changes in the Government's requirements or the offeror's proposal which would affect the source selection decision; and
(iv) Follow the procedures in FAR 15.606 if changes in the Government's requirements are necessary.
SUBPART 215.7--MAKE-OR-BUY PROGRAMS
215.704 Items and work included.
The minimum dollar amount is $1 million.
SUBPART 215.8--PRICE NEGOTIATION
215.804 Cost or pricing data and information other than cost or pricing data.
215.804-1 Prohibition on obtaining cost or pricing data.
(b) Standards for exceptions from cost or pricing data requirements.
(1) Adequate price competition.
(A) An example of a price ``based on'' adequate price competition is exercise of a priced option in a contract where adequate price competition existed, if the contracting officer has determined that the option price is reasonable in accordance with FAR 17.207(d);
(B) Dual or multiple source programs.
(1) In dual or multiple source programs, the determination of adequate price competition must be made on a case-by-case basis. Contracting officers must exercise deliberation and thorough review in making the determination. Even when adequate price competition exists, in certain cases it may be appropriate to obtain additional information to assist in price analysis.
(2) Adequate price competition normally exists when--
(i) Prices are solicited across a full range of step quantities, normally including a 0-100 percent split, from at least two offerors that are individually capable of producing the full quantity; and
(ii) The reasonableness of all prices awarded is clearly established on the basis of price analysis (see FAR 15.404-1(b)).
(4) Exceptional cases.
(A) The DoD has exempted the Canadian Commercial Corporation and its subcontractors from submission and certification of cost or pricing data on all acquisitions.
(B) The DoD has waived certain cost or pricing data requirements for nonprofit organizations (including educational institutions) on cost-reimbursement-no-fee contracts. The contracting officer shall require--
*****(1) Submission of information other than cost or pricing data to the extent necessary to determine price reasonableness and cost realism; and
(2) Cost or pricing data from subcontractors that are not nonprofit organizations.
215.804-6 Procedural requirements.
(b)(1)(A) When the solicitation requires contractor compliance with the Contractor Cost Data Reporting (CCDR) System (Army - AMCP 715-8, Navy - NAV PUB P-5241, and Air Force - AFMCP 800-15), require the contractor to submit DD Forms 1921 or 1921-1 with its SF 1411.
(B) Contracting offices may develop contract pricing proposal supporting schedules for use by offerors in providing supporting data for the SF 1411. Schedules should only ask for data that are necessary and reasonable based on industry, company, or commodity practices.
215.804-7 Defective cost or pricing data.
(b)(2) Unless there is clear evidence to the contrary, the contracting officer may presume the defective data were relied on and resulted in a contract price increase equal to the amount of the defect plus related overhead and profit or fee. The contracting officer is not expected to reconstruct the negotiation by speculating as to what would have been the mental attitudes of the negotiating parties if the nondefective data had been known.
215.804-8 Contract clauses.
If the solicitation or contract includes one of the clauses at FAR 52.215-23, FAR 52.215-24, or FAR 52.215-25, also use the clause at 252.215-7000, Pricing Adjustments.
215.805-5 Field pricing support.
(a)(1) (A) Contracting officers shall request field pricing reports for--
(1) Fixed-price proposals exceeding the cost or pricing data threshold at FAR 15.403-4(a)(1);
(2) Cost-type proposals exceeding the cost or pricing data threshold at FAR 15.403-4(a) (1) from offerors with significant estimating system deficiencies (see 215.811-70(a)(3) and (c)(2)(i)); or
(3) Cost-type proposals exceeding $10 million from offerors without significant estimating system deficiencies.
(B) Contracting officers may, with adequate written justification, waive the requirement for these reports.
(2) (A) The contract administration office price/cost analyst supports the administrative contracting officer in preparing a complete and accurate field pricing report for the contracting officer. The analyst--
(1) In concert with the auditor and in consideration of the auditor's workload, establishes a deadline for the auditor's input, subject to adjustments when considered necessary;
(2) Identifies areas for special consideration;
(3) Arranges for exchanges of technical and audit information; and
(4) Must be fully responsive to a request for technical information from the auditor.
(B) The pricing report--
(1) Details the price/cost analyst's comprehensive review and evaluation of the proposal;
(2) Includes information specifically requested by the contracting officer; and
(3) Summarizes what was analyzed, how it was analyzed, and the conclusions reached.
(c) (i) In requesting field pricing support--
(A) Mark all requests "FIELD PRICING REQUEST" in bold letters on the mailing envelope;
(B) On urgent requests, provide facsimile numbers to facilitate return of the completed report; and
(C) Send an advance copy to the audit activity.
(ii) When the contracting officer knows in advance that field pricing support will be required, the contracting officer may request field pricing support before the offeror submits a proposal.
(A) Give the administrative contracting officer (ACO) and auditor a copy of the solicitation;
(B) Tell them when to expect the proposal; and
(C) Tell the offeror to provide the ACO and auditor copies of the proposal.
(iii) Where audit reports are received on contracting actions that are subsequently cancelled or unsuccessful, notify the cognizant auditor in writing.
(iv) For spare parts or support equipment, identify all line items where the proposed price exceeds by 25 percent or more the lowest price the Government has paid within the most recent 12-month period. The field pricing report will include, as a minimum--
(A) A detailed analysis of each line item identified by the contracting officer in the request;
(B) A detailed analysis of those line items where a comparison of the item description and the proposed price indicates a potential for overpricing;
(C) An analysis of the significant high-dollar-value items. If there are no obvious high-dollar-value items, include an analysis of a random sample of items; and
(D) An analysis of a random sample of the remaining low-dollar value items. Sample size may be determined by subjective judgment, e.g., experience with the contractor and reliability of its estimating and accounting systems.
(v) For spare parts proposals that have been identified as Spares Acquisition Integrated with Production (SAIP) items (see DoDI 4245.12, Spares Acquisition Integrated with Production (SAIP))--
(A) Include a copy of the data entitled "Contractor's Procurement Schedule for SAIP' (Data Item DI-V-7200), or equivalent, in the request so that the benefits of combining new and in process quantities can be assured (these data are delivered by the contractor on contracts that include SAIP requirements); or
(B) Require the contractor to include these data in its proposal.
(e)(6) The contract administration office price/cost analyst is responsible for providing a complete and accurate field pricing report. This includes quantifying technical findings; however, if the auditor requests a technical analysis, the auditor normally will incorporate the financial effect of the analysis in the audit report.
(7) The contracting officer shall, with the advice of the ACO and auditor, ensure that the contractor initiates necessary corrective action before contract award.
(8) The administrative contracting officer and auditor shall confer with the contractor during the course of the field pricing review to fully understand the basis for each item in the proposal and to remove any doubts as to the validity and accuracy of their conclusions and findings.
(g) The audit activity sends the original to the administrative contracting officer and a copy to the contracting officer.
215.805-70 Cost realism analysis.
(a) In competitive acquisitions, even when adequate price competition exists, to ensure that proposed costs are consistent with the technical proposal, the contracting officer--
(1) Should perform a cost realism analysis when--
(i) A cost-reimbursement contract is anticipated;
(ii) The solicitation contains new requirements that may not be fully understood by competing contractors;
(iii) There are quality concerns; or
(iv) Past experience indicates that contractors proposed costs have resulted in quality or service shortfalls.
(2) May perform a cost realism analysis on other acquisitions.
(b) The contracting officer should determine what information other than cost or pricing data[is] necessary for the cost realism analysis during acquisition planning and development of the solicitation. Unless such information is already available from Government sources, the contracting officer will need to ask the offerors for it.
(1) Request only necessary data; and
(2) Do not request submission of cost or pricing data.
215.806 Subcontract pricing considerations.
215.806-1 General.
Price redeterminable or fixed-price incentive contracts may include subcontracts placed on the same basis. When the contracting officer wants to reprice the prime contract even though the contractor has not yet established final prices for the subcontracts, the contracting officer may negotiate a firm contract price--
(1) If cost or pricing data on the subcontracts show the amounts to be reasonable and realistic; or
(2) If cost or pricing data on the subcontracts are too indefinite to determine whether the amounts are reasonable and realistic, but--
(i) Circumstances require prompt negotiation; and
(ii) A statement substantially as follows is included in the repricing modification of the prime contract:
As soon as the Contractor establishes firm prices for each subcontract listed below, the Contractor shall submit (in the format and with the level of detail specified by the Contracting Officer) to the Contracting Officer the subcontractor's cost incurred in performing the subcontract and the final subcontract price. The Contractor and Contracting Officer shall negotiate an equitable adjustment in the total amount paid or to be paid under this contract to reflect the final subcontract price.
(a)(1) Contractor and subcontractor proposals may reflect the selection of sources whose proposals offer the greatest value to the Government in terms of performance and other factors. If the selection is based on greatest value rather than lowest price, the analysis supporting subcontractor selection should include a discussion of the factors considered in the selection (see also FAR 15.605(c) and 215.605(c)). If the contractor's analysis is not adequate, return it for correction of deficiencies.
(d) The contracting officer shall make every effort to ensure that fees negotiated by contractors for cost-plus-fixed-fee subcontracts do not exceed the fee limitations in FAR 15.903(d).
215.806-3 Field pricing reports.
(a) (i) If, in the opinion of the contracting officer or auditor, the review of a prime contractor's proposal requires further review of subcontractors' cost estimates at the subcontractors' plants (after due consideration of reviews performed by the prime contractor), these reviews should be fully coordinated with the administrative contracting officer (ACO) having cognizance of the prime contractor before being initiated. The ACO for the prime contractor will initiate the request to the ACO for the subcontractor, with an information copy to the auditor for the subcontractor. The ACO for the subcontractor sends the resulting field pricing report to the prime ACO with an information copy to the prime auditor. Requests for field pricing support on lower tier subcontractors are handled in a like manner.
(ii) Notify the appropriate contract administration activities when extensive, special, or expedited field pricing assistance will be needed to review and evaluate subcontractors' proposals under a major weapon system acquisition.
215.807 Prenegotiation objectives.
(a) (i) Also consider data resulting from application of work measurement systems in developing prenegotiation objectives.
(ii) Consider field pricing support personnel participation in planned prenegotiation and negotiation activities.
(b) Prenegotiation objectives, including objectives related to disposition of findings and recommendations contained in preaward and postaward contract audit and other advisory reports, shall be documented and reviewed in accordance with Departmental procedures.
215.808 Price negotiation memorandum.
(a) (8) Include the principal factors related to the disposition of findings and recommendations contained in preaward and postaward contract audit and other advisory reports.
(10) The memorandum--
(A) Must document significant deviations from the prenegotiation profit objective;
(B) Should include the DD Form 1547, Record of Weighted Guidelines Application (see Subpart 215.9), if used, with supporting rationale; and
(C) Must document the rationale for not using the weighted guidelines method when its use is required by 215.9.
215.809 Forward pricing rate agreements.
(e) (i) Use forward pricing rate agreement (FPRA) rates when such rates are available, unless waived on a case-by-case basis by the head of the contracting activity.
(ii) Advise the ACO of each case waived.
(iii) Contact the ACO for questions on FPRAs or recommended rates.
215.810-2 Program should-cost review.
(b) DoD contracting activities should consider performing a program should-cost review before award of a definitive major systems contract exceeding $100 million.
215.810-3 Overhead should-cost review.
(a) Contact the DCMC/DLA Overhead Center, Fort Belvoir, VA 22060-6221, at (703) 767-3387, for questions on overhead should-cost analysis.
(b) (i) The Defense Contract Management Command/Defense Logistics Agency (DCMC/DLA), or the military department responsible for performing contract administration functions (e.g., Navy SUPSHIP), should consider, based on risk assessment, performing an overhead should-cost review of a contractor business unit (as defined in FAR 31.001) when all of the following conditions exist:
(A) Projected annual sales to DoD exceed $1 billion.
(B) Projected DoD versus total business exceeds 30 percent;
(C) Level of sole-source DoD contracts is high;
(D) Significant volume of proposal activity is anticipated;
(E) Production or development of a major weapon system or program is anticipated; and
(F) Contractor cost control/reduction initiatives appear inadequate.
(ii) The head of the contracting activity may request an overhead should-cost review for a business unit which does not meet the criteria in paragraph (b)(i) of this subsection.
(iii) Overhead should-cost reviews are labor intensive. These reviews generally involve participation by the contracting, contract administration, and contract audit elements. The extent of availability of military department, contract administration, and contract audit resources to support DCMC/DLA-led teams should be considered when determining whether a review will be conducted. Overhead should-cost reviews generally shall not be conducted at a contractor business segment more frequently than every three years.
215.811-70 Disclosure, maintenance, and review requirements.
(a) Definitions.
(1) "Adequate estimating system" means an estimating system that--
(i) Is established, maintained, reliable, and consistently applied; and
(ii) Produces verifiable, supportable, and documented cost estimates.
(2) "Contractor" means a business unit as defined in FAR 31.001
(3) "Estimating system" is as defined in the clause at 252.215-7002, Cost Estimating System Requirements.
(4) "Significant estimating system deficiency" means a shortcoming in the estimating system which is likely to consistently result in proposal estimates for total cost or a major cost element(s) which do not provide an acceptable basis for negotiation of fair and reasonable prices.
(b) Applicability.
(1) DoD policy is that all contractors have estimating systems that--
(i) Are adequate;
(ii) Consistently produce well supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices;
(iii) Are consistent with and integrated with the contractor's related management systems; and
(iv) Are subject to applicable financial control systems.
(2) A large business contractor is subject to estimating system disclosure, maintenance, and review requirements if--
(i) In its preceding fiscal year the contractor received DoD prime contracts or subcontracts totaling $50 million or more for which cost or pricing data were required; or
(ii) In its preceding fiscal year the contractor received DoD prime contracts or subcontracts totaling $10 million or more (but less than $50 million) for which cost or pricing data were required and the contracting officer, with concurrence or at the request of the administrative contracting officer, determines it to be in the best interest of the Government (e.g., significant estimating problems are believed to exist or the contractor's sales are predominantly Government).
(c) Responsibilities.
(1) The contracting officer shall--
(i) Through use of the clause at 252.215-7002, Cost Estimating System Requirements, apply the disclosure, maintenance and review requirements to large business contractors meeting the criteria in paragraph (b)(2)(i) of this subsection;
(ii) Consider whether to apply the disclosure, maintenance, and review requirements to large business contractors under paragraph (b)(2)(ii) of this subsection; and
(iii) Not apply the disclosure, maintenance, and review requirement to other than large business contractors.
(2) The cognizant administrative contracting officer, for contractors subject to paragraph (b)(2) of this subsection, shall--
(i) Determine the adequacy of the disclosure and system; and
(ii) Pursue correction of any deficiencies.
(3) The cognizant auditor, on behalf of the ACO, serves as team leader in conducting estimating system reviews.
(4) A contractor subject to estimating system disclosure, maintenance, and review requirements shall--
(i) Maintain an adequate system;
(ii) Describe its system to the administrative contracting officer (ACO);
(iii) Provide timely notice of changes in the system; and
(iv) Correct system deficiencies identified by the ACO.
(d) Characteristics of an adequate estimating system.
(1) General.
An adequate system should provide for the use of appropriate source data, utilize sound estimating techniques and good judgment, maintain a consistent approach, and adhere to established policies and procedures.
(2) Evaluation.
In evaluating the adequacy of a contractor's estimating system, the ACO should consider whether the contractor's estimating system, for example--
(i) Establishes clear responsibility for preparation, review and approval of cost estimates;
(ii) Provides a written description of the organization and duties of the personnel responsible for preparing, reviewing, and approving cost estimates;
(iii) Assures that relevant personnel have sufficient training, experience and guidance to perform estimating tasks in accordance with the contractor's established procedures;
(iv) Identifies the sources of data and the estimating methods and rationale used in developing cost estimates;
(v) Provides for appropriate supervision throughout the estimating process;
(vi) Provides for consistent application of estimating techniques;
(vii) Provides for detection and timely correction of errors;
(viii) Protects against cost duplication and omissions;
(ix) Provides for the use of historical experience, including historical vendor pricing information, where appropriate;
(x) Requires use of appropriate analytical methods;
(xi) Integrates information available from other management systems, where appropriate;
(xii) Requires management review including verification that the company's estimating policies, procedures and practices comply with this regulation;
(xiii) Provides for internal review of and accountability for the adequacy of the estimating system, including the comparison of projected results to actual results and an analysis of any differences;
(xiv) Provides procedures to update cost estimates in a timely manner throughout the negotiation process; and
(xv) Addresses responsibility for review and analysis of the reasonableness of subcontract prices.
(3) Indicators of potentially significant estimating deficiencies.
The following examples indicate conditions that may produce or lead to significant estimating deficiencies--
(i) Failure to ensure that historical experience is available to and utilized by cost estimators, where appropriate;
(ii) Continuing failure to analyze material costs or failure to perform subcontractor cost reviews as required.
(iii) Consistent absence of analytical support for significant proposed cost amounts;
(iv) Excessive reliance on individual personal judgment where historical experience or commonly utilized standards are available;
(v) Recurring significant defective pricing findings within the same cost element(s);
(vi) Failure to integrate relevant parts of other management systems (e.g., production control or cost accounting) with the estimating system so that the ability to generate reliable cost estimates is impaired; and
(vii) Failure to provide established policies, procedures, and practices to persons responsible for preparing and supporting estimates.
(e) Review Procedures.
Cognizant audit and contract administration activities shall--
(1) Establish and manage regular programs for reviewing selected contractors' estimating systems.
(2) Conduct reviews as a team effort.
(i) The contract auditor will be the team leader.
(ii) The team leader will--
(A) Coordinate with the ACO to ensure that team membership includes qualified contract administration technical specialists.
(B) Advise the ACO and contractor of significant findings during the conduct of the review and during the exit conference.
(C) Prepare a team report.
(1) The ACO or a representative should--
(i) Coordinate the contract administration activity's review;
(ii) Consolidate findings and recommendations; and
(iii) When appropriate, prepare a comprehensive written report for submission to the auditor.
(2) The contract auditor will attach the ACO's report to the team report.
(3) Tailor reviews to take full advantage of the day-to-day work done by both organizations.
(4) Conduct a review every three years of contractors subject to the disclosure requirements. The ACO and auditor may lengthen or shorten the three-year period based on their joint risk assessment of the contractor's past experience and current vulnerability.
(f) Disposition of survey team findings.
(1) Reporting of survey team findings.
The auditor will document the findings and recommendations of the survey team in a report to the ACO. If there are significant estimating deficiencies, the auditor will recommend disapproval of all or portions of the estimating system.
(2) Initial notification to the contractor.
The ACO will provide a copy of the team report to the contractor and, unless there are no deficiencies mentioned in the report, ask the contractor to submit a written response in 30 days, or a reasonable extension.
(i) If the contractor agrees with the report, the contractor has 60 days from the date of initial notification to correct any identified deficiencies or submit a corrective action plan showing milestones and actions to eliminate the deficiencies.
(ii) If the contractor disagrees, the contractor should provide rationale in its written response.
(3) Evaluation of contractor's response.
The ACO, in consultation with the auditor, will evaluate the contractor's response to determine whether--
(i) The estimating system contains deficiencies which need correction;
(ii) The deficiencies are significant estimating deficiencies which would result in disapproval of all or a portion of the contractor's estimating system; or
(iii) The contractor's proposed corrective actions are adequate to eliminate the deficiency.
(4) Notification of ACO determination.
The ACO will notify the contractor and the auditor of the determination and, if appropriate, of the Government's intent to disapprove all or selected portions of the system. The notice shall--
(i) List the cost elements covered;
(ii) Identify any deficiencies requiring correction; and
(iii) Require the contractor to correct the deficiencies within 45 days or submit an action plan showing milestones and actions to eliminate the deficiencies.
(5) Notice of disapproval.
If the contractor has neither submitted an acceptable corrective action plan nor corrected significant deficiencies within 45 days, the ACO shall disapprove all or selected portions of the contractor's estimating system. The notice of disapproval must--
(i) Identify the cost elements covered;
(ii) List the deficiencies which prompted the disapproval; and
(iii) Be sent to the cognizant auditor, and each contracting and contract administration office having substantial business with the contractor.
(6) Monitoring contractor's corrective action.
The auditor and ACO will monitor the contractor's progress in correcting deficiencies. If the contractor fails to make adequate progress, the ACO shall take
whatever action is necessary to ensure that the contractor corrects the deficiencies. Examples of actions the ACO can take are: bringing the issue to the attention of higher level management, reducing or suspending progress payments (see FAR 32.503-6), and recommending nonaward of potential contracts.
(7) Withdrawal of estimating system disapproval.
The ACO will withdraw the disapproval when the ACO determines that the contractor has corrected the significant system deficiencies. The ACO will notify the contractor, the auditor, and affected contracting and contract administration activities of the withdrawal.
(g) Impact of estimating system deficiencies on specific proposals.
(1) Field pricing teams will discuss identified estimating system deficiencies and their impact in all reports on contractor proposals until the deficiencies are resolved.
(2) The contracting officer responsible for negotiation of a proposal generated by an estimating system with an identified deficiency shall evaluate whether the deficiency impacts the negotiations. If it does not, the contracting officer should proceed with negotiations. If it does, the contracting officer should consider other alternatives, e.g.--
(i) Allowing the contractor additional time to correct the estimating system deficiency and submit a corrected proposal;
(ii) Considering another type of contract, e.g., an FPIF instead of an FFP;
(iii) Using additional cost analysis techniques to determine the reasonableness of the cost elements affected by the system's deficiency;
(iv) Segregating the questionable areas as a cost reimbursable line item;
(v) Reducing the negotiation objective for profit or fee; or
(vi) Including a contract (reopener) clause that provides for adjustment of the contract amount after award.
(3) The contracting officer who incorporates a reopener clause into the contract is responsible for negotiating price adjustments required by the clause. Any reopener clause necessitated by an estimating deficiency should--
(i) Clearly identify the amounts and items which are in question at the time of negotiation;
(ii) Indicate a specific time or subsequent event by which the contractor will submit a supplemental proposal, including cost or pricing data, identifying the cost impact adjustment necessitated by the deficient estimating system. [ ]
(iii) Provide for the contracting officer to unilaterally adjust the contract price if the contractor fails to submit the supplemental proposal; and
(iv) Provide that failure of the Government and the contractor to agree to the price adjustment shall be a dispute under the Disputes clause.
(h) Contract clause.
Use the clause at 252.215-7002, Cost Estimating System Requirements, in all solicitations and contracts to be awarded on the basis of[ ] cost or pricing data.
215.873 Estimated data prices.
(a) The Department of Defense requires estimates of the prices of data in order to evaluate the cost to the Government of data items in terms of their management, product, or engineering value.
(b) When data are required to be delivered under a contract, the solicitation will include DD Form 1423, Contract Data Requirements List. The form and the provision included in the solicitation request the offeror to state what portion of the total price is estimated to be attributable to the production or development of the listed data for the Government (not to the sale of rights in the data). However, offerors' estimated prices may not reflect all such costs; and different offerors may reflect these costs in a different manner, for the following reasons--
(1) Differences in business practices in competitive situations;
(2) Differences in accounting systems among offerors;
(3) Use of factors or rates on some portions of the data;
(4) Application of common effort to two or more data items; and
(5) Differences in data preparation methods among offerors.
(c) Data price estimates should not be used for contract pricing purposes without further analysis.
(d) The contracting officer shall ensure that the contract does not include a requirement for data which the contractor has delivered or is obligated to deliver to the Government under another contract or subcontract, and that the successful offeror identifies any such data required by the solicitation. However, where duplicate data are desired, the contract price shall include the costs of duplication, but not of preparation, of such data.
215.902 Policy.
Departments and agencies shall use a structured approach for developing a prenegotiation profit or fee objective (profit objective) on any negotiated contract action that requires cost analysis, except on cost-plus-award-fee contracts (but see 215.974). There are three approaches--
(1) The weighted guidelines method;
(2) The modified weighted guidelines method; and
(3) An alternate structured approach.
215.903 Contracting officer responsibilities.
(a) Also, do not perform a profit analysis when assessing cost realism in competitive acquisitions.
(b) The contracting officer--
(1) Shall use the weighted guidelines method (see 215.971), unless--
(A) The modified weighted guidelines method applies; or
(B) An alternate approach is justified.
(2) Shall use the modified weighted guidelines method (see 215.972) on contract actions with nonprofit organizations;
(3) May use an alternate structured approach (see 215.973) when--
(i) The contract action is--
(A) Under $500,000;
(B) For architect-engineer or construction work;
(C) Primarily for delivery of material from subcontractors; or
(D) A termination settlement; or
(ii) The weighted guidelines method does not produce a reasonable overall profit objective and the head of the contracting activity approves use of the alternate approach in writing.
(4) Shall use the weighted guidelines method to establish a basic profit rate under a formula type pricing agreement, and may then use the basic rate on all actions under the agreement, provided that conditions affecting profit do not change.
(5) Shall document the profit analysis in the price negotiation memorandum.
(e) Although specific agreement on the applied weights or values for individual profit factors shall not be attempted, the contracting officer may encourage the contractor to--
(1) Present the details of its proposed profit amounts in the weighted guidelines format or similar structured approach; and
(2) Use the weighted guidelines method in developing profit objectives for negotiated subcontracts.
(f) The contracting officer must also verify that relevant variables have not materially changed (e.g., performance risk, interest rates, progress payment rates, distribution of facilities capital).
215.905 Profit-analysis factors.
215.905-1 Common factors.
The common factors are embodied in the DoD structured approaches and need not be further considered by the contracting officer.
215.970 DD Form 1547, Record of Weighted Guidelines Method Application.
(a) The DD Form 1547--
(1) Provides a vehicle for performing the analysis necessary to develop a profit objective;
(2) Provides a format for summarizing profit amounts subsequently negotiated as part of the contract price; and
(3) Serves as the principal source document for reporting profit statistics to DoD's management information system.
(b) The Military Departments are responsible for establishing policies and procedures for feeding the DoD-wide management information system on profit and fee statistics (see 215.975).
(c) The contracting officer shall--
(1) Use and prepare a DD Form 1547 whenever a structured approach to profit analysis is required by 215.902. (See 215.971, 215.972, and 215.973 for guidance on using the structured approaches). Administrative instructions for completing the form are in 253.215-70.
(2) Ensure that the DD Form 1547 is accurately completed. The contracting officer is responsible for the correction of any errors detected by the management system auditing process.
215.971 Weighted guidelines method.
(a) The weighted guidelines method focuses on three profit factors--
(1) Performance risk;
(2) Contract type risk; and
(3) Facilities capital employed.
(b) The contracting officer assigns values to each profit factor; the value multiplied by the base results in the profit objective for that factor. Each profit factor has a normal value and a designated range of values. The normal value is representative of average conditions on the prospective contract when compared to all goods and services acquired by DoD. The designated range provides values based on above normal or below normal conditions. In the price negotiation memorandum, the contracting officer need not explain assignment of the normal value, but should address conditions that justify assignment of other than the normal value.
(a) Description.
This profit factor addresses the contractor's degree of risk in fulfilling the contract requirements. The factor consists of three parts--
(1) Technical -- the technical uncertainties of performance.
(2) Management -- the degree of management effort necessary to ensure that contract requirements are met.
(3) Cost control -- the contractor's efforts to reduce and control costs.
(b) Determination.
The following extract from the DD Form 1547 is annotated to describe the process.
Contractor Assigned Assigned Base Profit
Item Risk Factors Weighting Value (Item 18) Objective
21. TECHNICAL (1) (2) N/A N/A
22. MANAGEMENT (1) (2) N/A N/A
23. COST CONTROL (1) (2) N/A N/A
24. PERFORMANCE RISK N/A (3) (4) (5)
(COMPOSITE)
(1) Assign a weight (percentage) to each element according to its input to the total performance risk. The total of the three weights equals 100%.
(2) Select a value for each element from the list in paragraph (c) of this subsection using the evaluation criteria in paragraphs (d), (e), and (f) of this subsection.
(3) Compute the composite as shown in the following example--
Assigned Assigned Weighted
Weighting Value Value
Technical 30% 5.0% 1.5%
Management 30 4.0 1.2
Cost Control 40 4.5 1.8
Composite Value 100% 4.5%
(4) Insert the amount from Block 18 of the DD Form 1547. Block 18 is total contract costs, excluding general and administrative expenses, contractor independent research and development/bid and proposal expenses, and facilities capital cost of money.
(5) Multiply (3) by (4).
(c) Values: Normal and designated ranges.
Normal Designated
Value Range
Standard 4% 2% to 6%
Alternate 6% 4% to 8%
(1) Standard.
The standard designated range should apply to most contracts.
(2) Alternate.
Contracting officers may use the alternate designated range for research and development and service contractors when these contractors require relatively low capital investment in buildings and equipment when compared to the defense industry overall. If the alternate designated range is used, do not give any profit for facilities capital employed (see 215.971-4(c)(3)).
(d) Evaluation criteria for technical.
(1) Review the contract requirements and focus on the critical performance elements in the statement of work or specifications. Factors to consider include--
(i) Technology being applied or developed by the contractor:;
(ii) Technical complexity;
(iii) Program maturity;
(iv) Performance specifications and tolerances;
(v) Delivery schedule; and
(vi) Extent of a warranty or guarantee.
(2) Above normal conditions.
(i) The contracting officer may assign a higher than normal value in those cases where there is a substantial technical risk. Indicators are--
(A) The contractor is either developing or applying advanced technologies;
(B) Items are being manufactured using specifications with stringent tolerance limits;
(C) The efforts require highly skilled personnel or require the use of state of the art machinery;
(D) The services and analytical efforts are extremely important to the Government and must be performed to exacting standards;
(E) The contractor's independent development and investment has reduced the Government's risk or cost;
(F) The contractor has accepted an accelerated delivery schedule to meet DoD requirements; or
(G) The contractor has assumed additional risk through warranty provisions.
(ii) Extremely complex, vital efforts to overcome difficult technical obstacles which require personnel with exceptional abilities, experience, and professional credentials may justify a value significantly above normal.
(iii) The following may justify a maximum value--
(A) Development or initial production of a new item, particularly if performance or quality specifications are tight; or
(B) A high degree of development or production concurrency.
(3) Below normal conditions.
(i) The contracting officer may assign a lower than normal value in those cases where the technical risk is low. Indicators are--
(A) Acquisition is for off-the-shelf items;
(B) Requirements are relatively simple;
(C) Technology is not complex;
(D) Efforts do not require highly skilled personnel;
(E) Efforts are routine;
(F) Programs are mature; or
(G) Acquisition is a follow-on effort or a repetitive type acquisition.
(ii) The contracting officer may assign a value significantly below normal for--
(A) Routine services;
(B) Production of simple items;
(C) Rote entry or routine integration of Government furnished information; or
(D) Simple operations with Government-furnished property.
(e) Evaluation criteria for management.
(1) The contracting officer should--
(i) Assess the contractor's management and internal control systems using contracting office information and reviews made by field contract administration offices or other DoD field offices;
(ii) Assess the management involvement expected on the prospective contract action;
(iii) Consider the degree of cost mix as an indication of the types of resources applied and value-added by the contractor; and
(iv) Consider the contractor's support of Federal socioeconomic programs.
(2) Above normal conditions.
(i) The contracting officer may assign a higher than normal value when the management effort is intense. Indicators of this are--
(A) The contractor's value-added is both considerable and reasonably difficult;
(B) The effort involves a high degree of integration or coordination; or
(C) The contractor has a substantial record of active participation in Federal socioeconomic programs.
(ii) The contracting officer may justify a maximum value when the effort--
(A) Requires large scale integration of the most complex nature;
(B) Involves major international activities with significant management coordination (e.g., offsets with foreign vendors); or
(C) Has critically important milestones.
(3) Below normal conditions.
(i) The contracting officer may assign a lower than normal value when the management effort is minimal. Indicators of this are--
(A) The program is mature and many end item deliveries have been made;
(B) The contractor adds minimum value to an item;
(C) The efforts are routine and require minimal supervision;
(D) The contractor provides poor quality, untimely proposals;
(E) The contractor fails to provide an adequate analysis of subcontractor costs; or
(F) The contractor does not cooperate in the evaluation and negotiation of the proposal.
(ii) The following may justify a value significantly below normal--
(A) Reviews performed by the field contract administration offices disclose unsatisfactory management and internal control systems (e.g., quality assurance, property control, safety, security); or
(B) The effort requires an unusually low degree of management involvement.
(f) Evaluation criteria for cost control.
(1) The contracting officer should evaluate--
(i) The expected reliability of the contractor's cost estimates (including the contractor's cost estimating system);
(ii) The contractor's cost reduction initiatives (e.g., competition advocacy programs, dual sourcing, spare parts pricing reform, value engineering);
(iii) The adequacy of the contractor's management approach to controlling cost and schedule; and
(iv) Any other factors which affect the contractor's ability to meet the cost targets, e.g., foreign currency exchange rates and inflation rates.
(2) Above normal conditions.
The contracting officer may assign a higher than normal value if the contractor can demonstrate a highly effective cost control program. Indicators of this are--
(i) The contractor provides fully documented and reliable cost estimates;
(ii) The contractor has an aggressive cost reduction program that has demonstrable benefits;
(iii) The contractor uses a high degree of subcontract competition (e.g., aggressive dual sourcing); or
(iv) The contractor has a proven record of cost tracking and control.
(3) Below normal conditions.
The contracting officer may assign a lower than normal value if the contractor demonstrates minimal concern for cost control. Indicators are--
(i) The contractor's cost estimating system is marginal;
(ii) The contractor has made minimal effort to initiate cost reduction programs;
(iii) The contractor's cost proposal is inadequate;
(iv) The contractor has a record of cost overruns or other indication of unreliable cost estimates and lack of cost control.
215.971-3 Contract type risk and working capital adjustment.
(a) Description. The contract type risk factor focuses on the degree of cost risk accepted by the contractor under varying contract types. The working capital adjustment is an adjustment added to the profit objective for contract type risk. It only applies to fixed-price contracts that provide for progress payments. Though it uses a formula approach, it is not intended to be an exact calculation of the cost of working capital. Its purpose is to give general recognition to the contractor's cost of working capital under varying contract circumstances, financing policies, and the economic environment.
(b) Determination.
The following extract from the DD 1547 is annotated to explain the process.
Contractor Assigned Base Profit
Item Risk Factors Value (Item 18) Objective
25. CONTRACT TYPE RISK (1) (2) (3)
Cost Length Interest
Financed Factor Rate
26. WORKING CAPITAL(4) (5) (6) (7) (8)
(1) Select a value from the list of contract types in paragraph (c) of this subsection using the evaluation criteria in paragraph (d) of this subsection.
(2) Insert the amount from Block 18, i.e., the total allowable costs excluding general and administrative expenses, independent research and development/bid proposal expenses, and facilities capital cost of money.
(3) Multiply (1) by (2).
(4) Only complete this Block when the prospective contract is a fixed-price contract containing provisions for progress payments.
(5) Insert the amount computed per paragraph (e) of this subsection.
(6) Insert the appropriate figure from paragraph (f) of this subsection.
(7) Use the interest rate established by the Secretary of the Treasury (230.7101(a)). Do not use any other interest rate.
(8) Multiply (5) by (6) by (7). This is the working capital adjustment. It shall not exceed 4 percent of the contract costs in Block 20.
(c) Values: Normal and designated ranges.
Normal Designated
Contract Type Notes Value Range
Firm fixed-price, no financing (1) 5% 4% to 6%
Firm fixed-price, with financing (2) 3% 2% to 4%
Fixed-price-incentive, no financing (1) 3% 2% to 4%
Fixed-price with redeterminable provision (3)
Fixed-price-incentive, with financing (2) 1% 0% to 2%
Cost-plus-incentive-fee (4) 1% 0% to 2%
Cost-plus-fixed-fee (4) .5% 0% to 1%
Time and material contracts (5) .5% 0% to 1%
(including overhaul contracts
priced on time and material basis)
Labor-hour contracts (5) .5% 0% to 1%
Firm fixed-price-level-of-effort-term (5) .5% 0% to 1%
(1) "No financing" means that the contract either does not provide progress payments, or provides them only on a limited basis, such as financing of first articles. Do not compute a working capital adjustment.
(2) "With financing" means progress payments. When progress payments are present, compute a working capital adjustment (Block 26).
(3) For the purposes of assigning profit values, treat a fixed-price contract with redeterminable provisions as if it were a fixed-price-incentive contract with below normal conditions.
(4) Cost-plus contracts shall not receive the working capital adjustment.
(5) These types of contracts are considered cost-plus-fixed-fee contracts for the purposes of assigning profit values. They shall not receive the working capital adjustment in Block 26. However, they may receive higher than normal values within the designated range to the extent that portions of cost are fixed.
(d) Evaluation criteria.
(1) General.
The contracting officer should consider elements that affect contract type risk such as--
(i) Length of contract;
(ii) Adequacy of cost data for projections;
(iii) Economic environment;
(iv) Nature and extent of subcontracted activity;
(v) Protection provided to the contractor under contract provisions (e.g., economic price adjustment clauses);
(vi) The ceilings and share lines contained in incentive provisions; and
(vii) Risks associated with contracts for foreign military sales (FMS) which are not funded by U.S. appropriations.
(2) Mandatory.
The contracting officer shall assess the extent to which costs have been incurred prior to definitization of the contract action (see also 217.7404-6(a)). The assessment shall include any reduced contractor risk on both the contract before definitization and the remaining portion of the contract. When costs have been incurred prior to definitization, generally regard the contract type risk to be in the low end of the designated range. If a substantial portion of the costs have been incurred prior to definitization, the contracting officer may assign a value as low as 0%, regardless of contract type.
(3) Above normal conditions.
The contracting officer may assign a higher than normal value when there is substantial contract type risk. Indicators of this are--
(i) Efforts where there is minimal cost history;
(ii) Long-term contracts without provisions protecting the contractor, particularly when there is considerable economic uncertainty;
(iii) Incentive provisions (e.g., cost and performance incentives) which place a high degree of risk on the contractor; or
(iv) FMS sales (other than those under DoD cooperative logistics support arrangements or those made from U.S. Government inventories or stocks) where the contractor can demonstrate that there are substantial risks above those normally present in DoD contracts for similar items.
(4) Below normal conditions.
The contracting officer may assign a lower than normal value when the contract type risk is low. Indicators of this are--
(i) Very mature product line with extensive cost history;
(ii) Relatively short-term contracts;
(iii) Contractual provisions which substantially reduce the contractor's risk; or
(iv) Incentive provisions which place a low degree of risk on the contractor.
(e) Costs financed.
(1) Costs financed equal total costs multiplied by the portion (percent) of costs financed by the contractor.
(2) Total costs equal Block 20 (i.e., all allowable costs, including general and administrative and independent research and development/bid and proposal, but excluding facilities capital cost of money), reduced as appropriate when--
(i) The contractor has little cash investment (e.g., subcontractor progress payments liquidated late in period of performance);
(ii) Some costs are covered by special financing provisions, such as advance payments; or
(iii) The contract is multiyear and there are special funding arrangements.
(3) The portion financed by the contractor is generally the portion not covered by progress payments, i.e., 100% minus the customary progress payment rate (FAR 32.501). For example, if a contractor receives progress payments at 75%, the portion financed by the contractor is 25%. On contracts that provide flexible progress payments (252.232-7003) or progress payments to small businesses, use the customary progress payment rate for large businesses.
(f) Contract length factor.
(1) This is the period of time that the contractor has a working capital investment in the contract. It--
(i) Is based on the time necessary for the contractor to complete the substantive portion of the work;
(ii) Is not necessarily the period of time between contract award and final delivery (or final payment), as periods of minimal effort should be excluded;
(iii) Should not include periods of performance contained in option provisions; and
(iv) Should not, for multiyear contracts, include periods of performance beyond that required to complete the initial program year's requirements.
(2) The contracting officer--
(i) Should use the following table to select the contract length factor;
(ii) Should develop a weighted average contract length when the contract has multiple deliveries; and
(iii) May use sampling techniques provided they produce a representative result.
TABLE
Period to Perform Contract Length
Substantive Portion Factor
(in months)
21 or less .40
22 to 27 .65
28 to 33 .90
34 to 39 1.15
40 to 45 1.40
46 to 51 1.65
52 to 57 1.90
58 to 63 2.15
64 to 69 2.40
70 to 75 2.65
76 or more 2.90
(3) Example: A prospective contract has a performance period of 40 months with end items being delivered in the 34th, 36th, 38th, and 40th months of the contract. The average period is 37 months and the contract length factor is 1.15.
215.971-4 Facilities capital employed.
(a) Description.
This factor focuses on encouraging and rewarding aggressive capital investment in facilities that benefit DoD. It recognizes both the facilities capital that the contractor will employ in contract performance and the contractor's commitment to improving productivity.
(b) Determination.
The following extract from the DD Form 1547 has been annotated to explain the process.
Contractor Assigned Amount Profit
Item Facilities Capital Employed Value Employed Objective
27. LAND N/A (2) N/A
28. BUILDINGS (1) (2) (3)
29. EQUIPMENT (1) (2) (3)
(1) Select a value from the list in paragraph (c) of this subsection using the evaluation criteria in paragraph (d) of this subsection.
(2) Use the allocated facilities capital attributable to land, buildings, and equipment, as derived in DD Form 1861, "Contract Facilities Capital Cost of Money" (see 215.871-5 and 230.7001).
(i) In addition to the net book value of facilities capital employed, consider facilities capital that is part of a formal investment plan if the contractor submits reasonable evidence that--
(A) Achievable benefits to DoD will result from the investment; and
(B) The benefits of the investment are included in the forward pricing structure.
(ii) If the value of intracompany transfers has been included in Block 18 at cost (i.e., excluding general and administrative (G&A) expenses and profit), add to the contractor's allocated facilities capital, the allocated facilities capital attributable to the buildings and equipment of those corporate divisions supplying the intracompany transfers. Do not make this addition if the value of intracompany transfers has been included in Block 18 at price (i.e., including G&A expenses and profit).
(3) Multiply (1) by (2).
(c) Values: Normal and designated ranges.
Normal Designated
Notes Asset Type Value Range
(1) Land 0% N/A
(1) Buildings 15% 10% to 20%
(1) Equipment 35% 20% to 50%
(2) Land 0% N/A
(2) Buildings 5% 0% to 10%
(2) Equipment 20% 15% to 25%
(3) Land 0% N/A
(3) Buildings 0% 0%
(3) Equipment 0% 0%
(1) These are the normal values and ranges. They apply to all situations except those noted in (2) and (3).
(2) These alternate values and ranges apply to situations where a highly facilitized manufacturing firm will be performing a research and development or services contract. They balance the method used to allocate facilities capital cost of money, which may produce disproportionate allocation of assets to these types of efforts.
(3) When using a value from the alternate designated range for the performance risk factor (215.971-2(c)(2)), do not allow profit on facilities capital employed.
(d) Evaluation criteria.
(1) In evaluating facilities capital employed, the contracting officer--
(i) Should relate the usefulness of the facilities capital to the goods or services being acquired under the prospective contract;
(ii) Should analyze the productivity improvements and other anticipated industrial base enhancing benefits resulting from the facilities capital investment, including--
(A) The economic value of the facilities capital, such as physical age, undepreciated value, idleness, and expected contribution to future defense needs; and
(B) The contractor's level of investment in defense related facilities as compared with the portion of the contractor's total business which is derived from DoD;
(iii) Should consider any contractual provisions that reduce the contractor's risk of investment recovery, such as termination protection clause, capital investment indemnification, and productivity saving rewards (215.870-3); and
(iv) Shall ensure that increases in facilities capital investments are not merely asset revaluations attributable to mergers, stock transfers, take-overs, sales of corporate entities, or similar actions.
(2) Above normal conditions.
(i) The contracting officer may assign a higher than normal value if the facilities capital investment has direct, identifiable, and exceptional benefits. Indicators are--
(A) New investments in state-of-the-art technology which reduce acquisition cost or yield other tangible benefits such as improved product quality or accelerated deliveries;
(B) Investments in new equipment for research and development applications; or
(C) Contractor demonstration that the investments are over and above the normal capital investments necessary to support anticipated requirements of DoD programs.
(ii) The contracting officer may assign a value significantly above normal when there are direct and measurable benefits in efficiency and significantly reduced acquisition costs on the effort being priced. Maximum values apply only to those cases where the benefits of the facilities capital investment are substantially above normal.
(3) Below normal conditions.
(i) The contracting officer may assign a lower than normal value if the facilities capital investment has little benefit to DoD. Indicators are--
(A) Allocations of capital apply predominantly to commercial item lines;
(B) Investments are for such things as furniture and fixtures, home or group level administrative offices, corporate aircraft and hangars, gymnasiums; or
(C) Facilities are old or extensively idle.
(ii) The contracting officer may assign a value significantly below normal when a significant portion of defense manufacturing is done in an environment characterized by outdated, inefficient, and labor-intensive capital equipment.
215.972 Modified weighted guidelines method for nonprofit organizations.
(a) Definition.
As used in this subpart, a nonprofit organization is a business entity--
(1) Which operates exclusively for charitable, scientific, or educational purposes;
(2) Whose earnings do not benefit any private shareholder or individual;
(3) Whose activities do not involve influencing legislation or political campaigning for any candidate for public office; and
(4) Which is exempted from Federal income taxation under section 501 of the Internal Revenue Code.
(b) For nonprofit organizations which are Federally funded research and development centers (FFRDCs), the contracting officer--
(1) Should consider whether any fee is appropriate. Considerations shall include the FFRDC's--
(i) Proportion of retained earnings (as established under generally accepted accounting methods) that relates to DoD contracted effort;
(ii) Facilities capital acquisition plans;
(iii) Working capital funding as assessed on operating cycle cash needs;
(iv) Contingency funding; and
(v) Provision for funding unreimbursed costs deemed ordinary and necessary to the FFRDC.
(2) Shall, when a fee is considered appropriate, compute the fee objective using the weighted guidelines method in 215.971, with the following modifications--
(i) Modifications to performance risk (Blocks 21 - 24 of the DD Form 1547).
(A) If the contracting officer assigns a value from the standard designated range (215.971-2(c)), reduce the fee objective by an amount equal to 1% of the costs in Block 18 of the DD Form 1547. Show the net (reduced) amount on the DD Form 1547.
(B) If the contracting officer assigns a value from the alternate designated range, reduce the fee objective by an amount equal to 2% of the costs in Block 18 of the DD Form 1547. Show the net (reduced) amount on the DD Form 1547.
(ii) Modifications to contract type risk (Block 25 of the DD Form 1547).
Use a designated range of -1% to 0% in lieu of the values in 215.971-3. There is no normal value.
(c) For nonprofit organizations which are entities that have been identified by the Secretary of Defense or a Secretary of a Department as receiving sustaining support on a cost-plus-fixed-fee basis from a particular DoD department or agency, compute a fee objective for covered actions using the weighted guidelines method in 215.971, modified as described in paragraph (b)(2) of this section.
(d) For all other nonprofit organizations, compute a fee objective for covered actions using the weighted guidelines method in 215.971, modified as described in paragraph (b)(2)(i) of this section.
215.973 Alternate structured approaches.
(a) The contracting officer may use an alternate structured approach under 215.903.
(b) The contracting officer may design the structure of the alternate, but it shall include--
(1) Consideration of the three basic components of profit-- performance risk, contract type risk (including working capital), and facilities capital employed. However, the contracting officer is not required to complete Blocks 21 through 30 of the DD Form 1547.
(2) Offset for facilities capital cost of money.
(i) The contracting officer shall reduce the overall prenegotiation profit objective by the lesser of 1% of total cost or the amount of facilities capital cost of money. The profit amount in the negotiation summary of the DD Form 1547 must be net of the offset.
(ii) This adjustment is needed for the following reason: The values of the profit factors used in the weighted guidelines method were adjusted to recognize the shift in facilities capital cost of money from an element of profit to an element of contract cost (FAR 31.205-10) and reductions were made directly to the profit factors for performance risk. In order to ensure that this policy is applied to all DoD contracts which allow facilities capital cost of money, similar adjustments shall be made to contracts which use alternate structured approaches.
215.974 Fee requirements for cost-plus-award-fee contracts.
In developing a fee objective for cost-plus-award-fee contracts, the contracting officer shall--
(a) Follow the guidance in FAR 16.404-2 and 216.404-2;
(b) Not use the weighted guidelines method or alternate structured approach;
(c) Apply the offset policy in 215.973(b)(2) for facilities capital cost of money, i.e., reduce the base fee by the lesser of 1% of total costs or the amount of facilities capital cost of money; and
(d) Not complete a DD Form 1547.
215.975 Reporting profit and fee statistics.
(a) Contracting officers in contracting offices which participate in the management information system for profit and fee statistics send completed DD Forms 1547 on actions of $500,000 or more, where the contracting officer used either the weighted guidelines method, an alternate structured approach, or the modified weighted guidelines method, to their designated office within 30 days after contract award.
(b) Participating contracting offices and their designated offices are--
Contracting Office Designated Office
ARMY
All Army Procurement Research and
Analysis Office
ATTN: SFRD-KPR(WGL)
Bldg 12500, C Wing
Ft. Lee, VA 23801-6045
NAVY
*Naval Air Systems Command Commander
Naval Supply Systems Command
ATTN: SUP 026
Washington, DC 20376-5000
*Naval Sea Systems Command
*Space and Naval Warfare Systems Command
*Naval Facilities Engineering Command
*Naval Supply Systems Command
*Office of Naval Research
*Headquarters, United States Marine Corps
*Strategic Systems Programs Office
*Military Sealift Command
*Automatic Data Processing Selection Office
*Navy Regional Data Automation Center
*Naval Research Laboratory
*Navy Commercial Communications Center
*Naval Aviation Depot Operations Center
*Includes all subordinate field offices
AIR FORCE
Air Force Materiel Command Air Force Materiel Command
(all field offices) 645 CCSG/SCOS
ATTN: J010 Clerk
2721 Sacramento Street
Wright-Patterson Air Force Base
Ohio 45433
(c) When negotiation of a contract action over $500,000 has been delegated to another contracting agency (e.g., to an administrative contracting officer), that agency shall ensure that a copy of the DD Form 1547 is provided to the delegating office for reporting purposes within 30 days from negotiation of the contract action.
(d) Contracting offices outside the United States, its possessions, and Puerto Rico are exempt from reporting.
(e) Designated offices send a quarterly (non-cumulative) report of DD Form 1547 data to--
Washington Headquarters Service
Directorate for Information Operations and Reports (WHS/DIOR)
1215 Jefferson Davis Highway
Suite 1204
Arlington, VA 22202-4302
(f) In preparing/sending the quarterly report, designated offices--
(1) Perform the necessary audits to ensure information accuracy;
(2) Do not enter classified information;
(3) Transmit the report via computer magnetic tape using the procedures, format, and editing process issued by the Director of Defense Procurement; and
(4) Send the reports not later than the 30th day after the close of the quarterly reporting periods.
(g) These reporting requirements have been assigned report control symbol: P&L(Q) 1751.
SUBPART 215.10--PREAWARD, AWARD, AND POSTAWARD NOTIFICATIONS,
PROTESTS, AND MISTAKES
215.1001 Notifications to unsuccessful offerors.
(b) Preaward notices.
(2) Acquisitions processed under small purchase procedures are exempt from the requirements of FAR 15.1001(b)(2).