Question

You are a Contract Specialist working for the Department of Defense. You have been given the task of performing a should cost analysis on a proposal that is 50% below the Independent Government Cost Estimate (IGCE). Discuss the steps that you would take to perform the cost realism analysis. What sources of information could you utilize in performing the analysis?

Answer 1

Steps in performing the cost realism analysis:

• The specialist must be assured that the solicitation states how the how the realism analysis will be used in the final of decision of awarding the contract.
• To obtain the information other than cost of pricing the data that is required to support the realism analysis.
• Obtain other required information to support the analysis.
• Obtain the required support from other members of the government acquisition team.
• Identify the costs or prices that are understated for the required contract effort.
• If necessary estimate the probable cost of performance of the contract.
• To use the cost realism analysis results in the evaluation of the offer.

Source of information:

Once you decide to use cost realism analysis, you must decide what information other than cost or pricing data you will need to complete your analysis. In particular, you must decide what information to require from offerors. Normally, you should make this decision during acquisition planning and identify necessary cost information requirements in the solicitation. You may establish the requirement after receipt of offers, but the acquisition will be delayed while offerors gather and submit the information required. The solicitation requirement for information other than cost or pricing data:

• Should be limited to the data that you anticipate will be needed for cost realism analysis. For example, if you are primarily concerned about the realism of labor estimates, you may limit the information requirement to labor rate and labor hour estimates. In that situation, you need not require submission of information on material, indirect costs, or profit.

• Should permit each offeror to determine its submission format unless you need a specific format for efficient and effective analysis. For a commercial item acquisition, limit information requirements, to the maximum extent practicable, to information in the form regularly maintained by the offeror in its commercial operations.

• Should require each offeror to submit information that is sufficiently current to permit effective cost realism analysis.

• A detailed and well-documented Independent Government Estimate is a valuable tool for supporting cost realism analysis. It provides a: Model to identify the offeror information required for cost realism analysis, and Primary benchmark for cost realism analysis.

• Sources of market cost information include: Cost estimating relationships or pricing models; or Wage determinations under the Davis-Bacon Act or Service Contract Act; and Published cost/price indexes. Obtain Other Information Necessary to Support Analysis.

• Sources of information about specific offerors include: Technical evaluations of offeror proposals for similar contract requirements; Audit reports on recent proposals; Forward pricing rate proposals and any forward pricing rate recommendations, or current forward pricing rate agreements; Contract and program histories related to the current acquisition; and Results from related cost estimating system reviews.

DO NOT use data from one offeror's proposal to question the realism of another offeror's proposal. The two proposals are based on different cost accounting systems and may be based on entirely different technical approaches.