Question

What is the purpose of using weighted guidelines in DoD pricing?

Answer 1

Many contractors find themselves asking: “How are we going to determine and bid profit/fee percentages to be applied in a proposal?” (Profit/fee is the dollar amount over and above allowable costs that is paid to the firm for contract performance.)

We know that each contractor has the right to determine the bid for each contract i.e they can decide the amount of applied profit/fee. This depends upon various factors such as scope of the work, service or products offered and the type of contract. It also depends upon the risk and competition.

Contractors can utilize the Defense Federal Acquisition Regulation Supplement (“DFARS”) Weighted Guidelines approach as a tool in determining their profit negotiation position, per Federal Acquisition Regulation (“FAR”) 15.404-4 Profit and DFAR 215.404-71.

The purpose is:

The weighted guidelines often helps define what the government may consider to be the appropriate amount of profit to be applied within a proposal.

The overarching objective of the weighted guidelines is to define, based on specified criteria, how well a contractor and/or the proposed effort aligns to that criteria, and provide a measurable way to quantify a profit percentage objective.This analysis provides the government support in justifying profit/fee percentages applied to total proposed direct and indirect costs.

This is because the weighted guidelines method takes into account:

1. The contractors degree of performance risk in producing the goods or services purchased under the contract;
2. The contract-type risk assumed by the contract under varied contracts and incentive arrangements;
3. The level of working capital needed to perform the contract;
4. The nature of the contractor’s facilities capital to be employed; and
5. Contractor cost reduction efforts that the contractor can demonstrate will benefit the pending contract.