CHAPTER 8
Federal Acquisition Regulation Requirements
The purpose of this chapter is to describe the price proposal requirements related to the Federal Acquisition Regulation (FAR), which includes department FAR Supplements and the Defense Contract Audit Agency (DCAA) Contract Audit Manual (DCAM). The regulations direct how price proposals must be prepared and supported when submitted to the government. The DCAM provides insights into the nature of the government review that will be performed on price proposals.
FAR TABLE 15-2
FAR 15.408, Solicitation provisions and contract clauses, contains instructions for preparing cost or price proposals. Most of these instructions are contained in Table 15-2, Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data Are Required, shown in Illustration 8-1. These instructions cover the clauses that the buyer (i.e., contracting officer) is to include in contracts.
ILLUSTRATION 8-1: FAR 15.408 Solicitation Provisions and Contract Clauses
Contract Clauses
This section on contract clauses reviews the clauses provided in Table 15-2 that are to be inserted into prime contracts, including identification of the clauses a prime contractor should include in subcontracts. This listing is of those clauses primarily related to pricing topics. Many more clauses exist that apply to individual contracts.
1. Changes or Additions to Make-or-Buy Program. The contracting officer is to insert FAR clause 52.215-9, Changes or Additions to Make-or-Buy Program, in solicitations and contracts when it is contemplated that a make-or-buy program will be incorporated in the contract. This clause accompanies a requirement for a Make-or-Buy program.
2. Price Reduction for Defective Certified Cost or Pricing Data. For negotiated contracts, the contracting officer is to insert FAR clause 52.215-10, Price Reduction for Defective Certified Cost or Pricing Data, in solicitations and contracts when it is contemplated that certified cost or pricing data will be required from the contractor. This clause is for Truth-in-Negotiations Act (TINA) requirements for prime contracts. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
3. Price Reduction for Defective Certified Cost or Pricing Data—Modifications. For negotiated contracts, the contracting officer is to insert FAR clause 52.215-11, Price Reduction for Defective Certified Cost or Pricing Data—Modifications, in solicitations and contracts when it is contemplated that certified cost or pricing data will be required from the contractor for the pricing of contract modifications and when FAR clause 52.215-10 is included in the contract. This clause is for TINA requirements for prime contract modifications. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
4. Subcontractor Certified Cost or Pricing Data. The contracting officer is to insert FAR clause 52.215-12, Subcontractor Certified Cost or Pricing Data, in solicitations when FAR clause 52.215-10 is included in the prime contract. This clause is for TINA requirements for subcontract prices in prime contracts. A prime contractor must include this clause in subcontracts when the clause is in the prime contract.
5. Subcontractor Certified Cost or Pricing Data—Modifications. The contracting officer is to insert FAR clause 52.215-13, Subcontractor Certified Cost or Pricing Data—Modifications, in solicitations and contracts when FAR clause 52.215-11 is included in the prime contract. This clause is for TINA requirements for subcontract modifications to prices in prime contracts. A prime contractor must include this clause in subcontracts when the clause is in the prime contract.
6. Integrity of Unit Prices. The contracting officer is to insert FAR clause 52.215-14, Integrity of Unit Prices, in solicitations and contracts except for:
• Acquisitions at or below the simplified acquisition threshold
• Construction or architect-engineer services under Part 36
• Utility services under Part 41
• Service contracts where supplies are not required
• Acquisitions of commercial items
• Contracts for petroleum products.
The contracting officer is also to insert this clause when contracting without adequate price competition or when prescribed by agency regulations. The purpose of this clause is to prevent unbalanced bids, i.e., where unit prices are distorted to enhance award prospects. A prime contractor must include this clause in subcontracts when the clause is in the prime contract.
7. Pension Adjustments and Asset Reversions. The contracting officer is to insert FAR clause 52.215-15, Pension Adjustments and Asset Reversions, in solicitations and contracts for which it is anticipated that certified cost or pricing data will be required or for which any preaward or postaward cost determinations will be subject to Part 31. The purpose of this clause is to assure the government shares in any gains and losses on the discontinuance of a defined benefit pension plan. A prime contractor must include this clause in subcontracts when the clause is in the prime contract.
8. Facilities Capital Cost of Money. The contracting officer is to insert the provision FAR 52.215-16, Facilities Capital Cost of Money, in solicitations expected to result in contracts that are subject to the cost principles for contracts with commercial organizations. The purpose of this clause is to authorize cost of money. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
9. Waiver of Facilities Capital Cost of Money. If the prospective contractor does not propose facilities capital cost of money (FCCOM) in its offer, the contracting officer is to insert FAR clause at 52.215-17, Waiver of Facilities Capital Cost of Money, in the resulting contract. The purpose of this clause is to deny cost of money if a contractor does not include the cost in a proposal. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
10. Reversion or Adjustment of Plans for Postretirement Benefits Other than Pensions. The contracting officer is to insert FAR clause at 52.215-18, Reversion or Adjustment of Plans for Postretirement Benefits Other than Pensions, in solicitations and contracts for which it is anticipated that certified cost or pricing data will be required or for which any preaward or postaward cost determinations will be subject to Part 31. The purpose of this clause is to assure the government shares in any gains and losses on the discontinuance of a postretirement benefit plan. A prime contractor must include this clause in subcontracts when the clause is in the prime contract.
11. Notification of Ownership Changes. The contracting officer is to insert FAR clause 52.215-19, Notification of Ownership Changes, in solicitations and contracts for which it is contemplated that certified cost or pricing data will be required or for which any preaward or postaward cost determination will be subject to subpart 31.2. The purpose of this clause is to alert the government when contract novations might be required and when costs might be impacted due to cost principles related to such areas as goodwill, asset write-ups, and reorganizations. A prime contractor must include this clause in subcontracts when the clause is in the prime contract.
12. Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data. The contracting officer is to insert the provision FAR 52.215-20, Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data, in solicitations if it is reasonably certain that certified cost or pricing data or data other than certified cost or pricing data will be required. The purpose of this clause is to require cost or pricing information when certified cost or pricing data are not required. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
13. Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data—Modifications. The contracting officer is to insert FAR clause 52.215-21, Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data—Modifications, in solicitations and contracts if it is reasonably certain that certified cost or pricing data or data other than certified cost or pricing data will be required for modifications. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
14. Limitations on Pass-Through Charges. The contracting officer is to insert FAR clause 52.215-23, Limitations on Pass-Through Charges, in solicitations and contracts including task or delivery orders as follows. For civilian agencies, insert the clause when:
• The total estimated contract or order value exceeds the simplified acquisition threshold.
• The contemplated contract type is expected to be a cost-reimbursement type contract.
For DoD, insert the clause when: (1) the total estimated contract or order value exceeds the threshold for obtaining cost or pricing data and (2) the contemplated contract type is expected to be any contract type except:
• A firm-fixed-price contract awarded on the basis of adequate price competition
• A fixed-price contract with economic price adjustment awarded on the basis of adequate price competition
• A firm-fixed-price contract for the acquisition of a commercial item
• A fixed-price contract with economic price adjustment, for the acquisition of a commercial item
• A fixed-price incentive contract awarded on the basis of adequate price competition
• A fixed-price incentive contract for the acquisition of a commercial item.
This clause may be used when the total estimated contract or order value is below the thresholds and for any contract type, when the contracting officer determines that inclusion of the clause is appropriate.
The purpose of this clause is to prevent payment of excessive pass-through costs. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
15. Limitations on Pass-Through Charges—Identification of Subcontract Effort. The contracting officer is to insert FAR provision 52.215-22, Limitations on Pass-Through Charges—Identification of Subcontract Effort, in solicitations containing FAR clause 52.215-23. The purpose of this clause is to alert the government of potential excessive pass-through costs. A prime contractor should include this clause in subcontracts when the clause is in the prime contract.
Instructions
FAR 15-408 provides instructions for preparing a contract pricing proposal when certified cost or pricing data are required. Much of the information requested in Table 15-2, Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data Are Required, was formerly obtained by the government on Standard Form 1411, which was removed from the FAR in 1995. However, the format remains useful and many contractors still use this form, which is contained in Illustration 8-2.
The first note to FAR 15.408 makes a very important point that the requirement for submission of certified cost or pricing data is met when all accurate certified cost or pricing data reasonably available to the offeror have been submitted, either actually or by specific identification, to the contracting officer or an authorized representative.
All too often, reviewers ignore the “specifically identified” component of this requirement and demand that all data must be actually submitted with a price proposal. On the other hand, specifically identified means just that—the data dump truck approach is not acceptable. Contractors should specifically describe the data (e.g., direct-labor rates for departments X and Y as of December 31, 20__).
As later data come into a contractor’s possession (the note continues), they should be submitted promptly to the contracting officer in a manner that clearly shows how the data relate to the price proposal. The requirement for submission of certified cost or pricing data continues up to the time of agreement on price, or an earlier date agreed upon by both parties if applicable. Timing is important—data must be current, accurate, and complete as of the date of price agreement. Earlier agreed-to cut-off dates for currency of data are permissible.
Potential contractors are also informed that, by submitting a proposal, an offeror grants the contracting officer or representative the right to examine records that formed the basis for the pricing proposal:
That examination can take place at any time before awarding of the contract. It may include those books, records, documents, and other types of factual data (regardless of form or whether the data are specifically referenced or included in the proposal as the basis for pricing) that will permit an adequate evaluation of the proposed price.
This provision is necessary, because before there is a contract award the government does not have an “access to records” clause to use for this purpose.
ILLUSTRATION 8-2: Standard Form 1411, Contract Pricing Proposal Cover Sheet
Required Information
Along with names, addresses, and other basic information, an offeror must provide, on the first page of a pricing proposal:
1. Solicitation, contract, and/or modification number. Obtain the solicitation number, contract number, or modification number from the solicitation or contract. If this proposal is for a new award using a Standard Form 26, Award/Contract (Attachment 2), identify the solicitation number in item 2. If this proposal is for a modification to an existing contract, the contract number will be found on the Standard Form 30, Amendment of Solicitation or Modification of Contract (Attachment 3), item 2.
2. Proposed cost, profit or fee, and total. Indicate the proposed/estimated cost, the profit or fee, and the total price in subitems A, B, and C. These figures should reconcile with the price proposal. The government, unlike commercial customers, requires separate identification of estimated costs and markup (which the government refers to as profit on a fixed-price contract and fee on a cost-reimbursement contract). Indicate each contract line item price. These amounts should reconcile with the price proposal. For the reference column (column E), make reference to the company-prepared summary of costs and profit or fee, detailed by cost element and year.
3. Whether the offeror is subject to the Cost Accounting Standards (CAS) and whether the offeror has submitted a CAS Board disclosure statement. If the offeror is exempt from the CAS, the exemption should be noted in the proposal. The CAS section of this chapter details when CAS coverage pertains and when a disclosure statement is required.
4. Whether the offeror’s CAS Board disclosure statement has been determined adequate; whether the offeror has been notified that it is or may be in noncompliance with its disclosure statement or CAS and, if yes, an explanation; whether any aspect of this proposal is inconsistent with disclosed practices or applicable CAS, and, if so, an explanation. This item should indicate, “No, this proposal is not inconsistent.” The estimate should not be prepared in a manner that is inconsistent in any way.
5. Whether the proposal is consistent with your established estimating and accounting principles and procedures and FAR Part 31, Cost Principles, and, if not, an explanation. This item should indicate, “Yes, this proposal is consistent.” The estimate should not be prepared in a manner that is inconsistent in any way.
6. The following statement is to be included in a proposal: “This proposal reflects our estimates and/or actual costs as of this date and conforms with the instructions in FAR 15.403-5(b)(1) and Table 15-2.” At one point the wording was “our best estimate.” This led to much confusion about whether best was “lowest” or “most likely” or “best good faith” estimate. Now the most significant aspect here is the identification of actual costs.
7. An offeror, by submitting a proposal, grants the contracting officer and authorized representative(s) the right to examine, at any time before award, those records, which include books, documents, accounting procedures and practices, and other data, regardless of type and form or whether such supporting information is specifically referenced or included in the proposal as the basis for pricing, that will permit an adequate evaluation of the proposed price. Important here is access to records and access regardless of whether such information was used as the basis for pricing.
In submitting a proposal, an offeror is to include an index, appropriately referenced, of all the certified cost or pricing data and information accompanying or identified in the proposal. In addition, the offeror must annotate any future additions and/or revisions up to the date of agreement on price, or an earlier date agreed upon by the parties, on a supplemental index.
As part of the specific information required, the offeror must submit with the proposal:
1. Certified cost or pricing data. An offeror must clearly identify on the cover sheet that certified cost or pricing data are included as part of the proposal.
2. Information reasonably required to explain the estimating process. This includes:
• The judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data
• The nature and amount of any contingencies included in the proposed price. No specific methods are required, but each should be explained. Note also the contingent costs are not unallowable in a proposal; they merely need to be explained so that the pricing or contract terms do not duplicate such contingencies.
An offeror must show the relationship between contract line item prices and the total contract price. An offeror must attach cost-element breakdowns for each proposed line item, using the appropriate format prescribed in the Formats for Submission of Line Item Summaries section of Table 15-2. An offeror must furnish supporting breakdowns for each cost element, consistent with its cost accounting system.
When more than one contract line item is proposed, an offeror must also provide summary total amounts covering all line items for each element of cost. Whenever the offeror has incurred costs for work performed before submission of a proposal, it must identify those costs in the cost or price proposal. This latter requirement is very critical. If an offeror has an agreement with government representatives on use of forward-pricing rates or factors, it must identify the agreement, include a copy, and describe its nature. As soon as practicable after final agreement on price or at an earlier date agreed to by the parties—but before the award resulting from the proposal—an offeror must, under the conditions stated in FAR 15.406-2, submit a certificate of current cost or pricing data.
Cost Elements
Depending on an offeror ‘s system, it must provide breakdowns for the following basic cost elements, as applicable.
Materials and services
The offeror must:
• Provide a consolidated priced summary of individual material quantities included in the various tasks, orders, or contract line items being proposed and the basis for pricing (vendor quotes, invoice prices, and so on). Include raw materials, parts, components, assemblies, and services to be produced or performed by others. For all items proposed, identify the item and show the source, quantity, and price.
• Conduct price analyses of all subcontractor proposals. Conduct cost analyses for all subcontracts when certified cost or pricing data are submitted by the subcontractor. Include these analyses as part of your own certified cost or pricing data submissions for subcontracts expected to exceed the appropriate threshold in FAR 15.403-4.
Two significant points must be made. First, the price analysis need not occur before agreement on the prime contract price, only before agreement on the subcontract price. Second, the analysis is to be submitted to the government; however, if no analysis exists, there is none to submit.
An offeror is to provide data showing the degree of competition and the basis for establishing the source and reasonableness of price for those acquisitions (such as subcontracts, purchase orders, material order, and so on) exceeding or expected to exceed the cost or pricing data threshold when materials are priced on the basis of adequate price competition.
A prime contractor is expected to obtain certified cost or pricing data from prospective sources for those acquisitions (e.g., subcontracts, purchase orders, material orders) exceeding the cost and pricing threshold and not otherwise exempt (e.g., adequate price competition, commercial items, prices set by law or regulation or waiver). Also, an offeror must provide data showing the basis for establishing source and reasonableness of price. In addition, it should provide a summary of any cost analysis and a copy of certified cost or pricing data submitted by the prospective source in support of each subcontract or purchase order that is either (1) $12.5 million or more or (2) both more than the pertinent certified cost or pricing data threshold and more than 10 percent of the prime contractor’s proposed price. This requirement does not include a prime contractor analysis of that subcontractor data. Furthermore, some subcontractors might refuse to provide a prime contractor with proprietary cost or pricing data. In such an event, the prime contractor must arrange for the subcontractor to submit the data directly to the government and notify the government that an audit is necessary.
Also, the offeror should submit any information reasonably required to explain its estimating process (including the judgmental factors applied and the mathematical or other methods used in the estimate, including those used in projecting from known data, and the nature and amount of any contingencies included in the price). The contracting officer may require submission of cost or pricing data in support of proposals in lower amounts. Subcontractor-certified cost or pricing data must be accurate, complete, and current as of the date of final price agreement on the subcontract price or an earlier date agreed upon by the parties. The prime contractor is responsible for updating a prospective subcontractor’s data. For standard commercial items fabricated by the offeror that are generally stocked in inventory, it must provide a separate cost breakdown, if priced was based on cost.
For interorganizational transfers priced at cost, the offeror should provide a separate breakdown of cost elements. The offeror should analyze the certified cost or pricing data and submit the results of its analysis of the prospective source’s proposal. When submission of a prospective source’s certified cost or pricing data is required as described in this paragraph, it must be included as part of the offeror’s own certified cost or pricing data. The offeror must also submit any data other than certified cost or pricing data obtained from a subcontractor, either actually or by specific identification, along with the results of any analysis performed on that data. Again, if the analysis does not exist, there is nothing to submit.
Direct labor
An offeror must provide a time-phased (e.g., monthly, quarterly) breakdown of labor hours, rates, and cost by appropriate category and furnish bases for estimates.
Indirect costs
The offeror must indicate how indirect costs have been computed and applied/allocated to direct costs. Cost trends and budgetary data should be provided as a basis for evaluating the reasonableness of proposed rates. The offeror should indicate the rates used and provide an appropriate explanation.
Other costs
The offeror must list all other direct costs not otherwise included in the categories described above (e.g., special tooling, travel, computer and consultant services, preservation, packaging and packing, spoilage and rework, federal excise tax on finished articles) and provide bases for pricing.
Royalties
If royalties exceed $1,500, the offeror must provide the following information on a separate page for each separate royalty or license fee: (1) name and address of licensor, (2) date of license agreement, (3) patent numbers, (4) patent application serial numbers or other basis on which the royalty is payable, (5) brief description (including any part or model numbers of each contract item or component on which the royalty is payable), (6) percentage or dollar rate of royalty per unit, (7) unit price of contract item, (8) number of units, (9) total dollar amount of royalties, and (10) a copy of the current license agreement and identification of applicable claims of specific patents (if specifically requested by the contracting officer).
Facilities capital cost of money
If an offeror elects to claim FCCOM as an allowable cost, it must submit Form CASB-CMF, showing the calculation of the proposed amount as described in Chapter 6.
FIELD PRICING SUPPORT
FAR 15.404-2 addresses what the government calls field pricing support. When evaluating proposals, the contracting officer should request field pricing assistance when the information available at the office of the government purchaser is inadequate to determine a fair and reasonable price. Field pricing assistance is generally available to provide: (1) technical, audit, and special reports associated with the cost elements of a proposal, including subcontracts; (2) information on related pricing practices and history; (3) information to help contracting officers determine status as a commercial item and a fair and reasonable price; (4) information relevant to the business, technical, production, or other capabilities and practices of an offeror.
When field pricing assistance is requested, contracting officers are encouraged to team with appropriate field experts throughout the acquisition process, including negotiations. Field pricing information and other reports may include proprietary or source selection information, which must be appropriately identified and protected accordingly.
In DoD, a contracting officer may contact the audit office at the contractor location directly, particularly when an audit is the only field pricing support required. The audit office sends the audit report or otherwise transmits the audit recommendations, directly to the contracting officer. The reviewer will not reveal the audit conclusions or recommendations to the offeror/contractor without obtaining the concurrence of the contracting officer. However, the reviewer may discuss statements of fact with the contractor.
General access to the offeror’s books and financial records is limited to the reviewer. This limitation does not preclude the contracting officer or administrative contracting officer, or their representatives, from requesting that the offeror provide or make available any data or records necessary to analyze the offeror’s proposal.
The administrative contracting officer or the reviewer, as appropriate, should notify the contracting officer immediately if the data provided for review is so deficient as to preclude review or audit, or if the contractor or offeror has denied access to any records considered essential to conduct a satisfactory review or audit. The contracting officer is to take appropriate action to obtain the required data. Should the offeror/contractor again refuse to provide adequate data or provide access to necessary data, the contracting officer may withhold the award or price adjustment and refer the contract action to a higher authority, providing details of the attempts made to resolve the matter and a statement of the practicability of obtaining the supplies or services from another source.
Defense Contract Audit Agency (DCAA) field pricing support results in issuance of an audit report to a contracting officer. This report is advisory in nature and is to be used by the recipient as a basis for negotiations along with advice from other support personnel. The audit report is classified as “for official use only” to limit its distribution. The report warns users not to improperly release the report or data in the report. If DCAA is requested to release a report under the Freedom of Information Act, the request will be directed to the contracting officer on the basis that it is the recipient’s role to make such determinations. DCAA and most organizations will not release data without advising the contractor and providing it an opportunity to join in any objection to release.
If an audit report is qualified, the use of that report—and the proposal being reported on—is not recommended. For example, if DCAA concludes that a proposal is not sufficiently supported to perform a review, the report will qualify the findings by stating that the proposal should not be used as a basis for negotiating a price. The report language always includes various DCAA boilerplate, such as statements that no CAS or TINA violations were encountered; however, DCAA also states that it could find such violations later. DCAA audit report wording encourages contracting officers to include DCAA personnel at negotiation sessions.
Although the audit report is advisory, clearly, contracting officers do not want to appear to overrule a DCAA finding. Officially, it is anticipated that the contracting officer will apply business sense to reports received from DCAA and other support personnel and that the final decision is that of the contracting officer. In practice, this is not the case. Once a finding is in a report, it is very unlikely that a contracting officer will decide in a manner that appears to be contradictory to the DCAA findings. This is especially true now that DCAA is encouraged to report to the proper authorities any contracting officer it believes inappropriately did not follow its recommendations.
CONSISTENCY IN ESTIMATING AND RECORDING COSTS
Consistency is a hallmark of government contracting, particularly in pricing. FAR 31.201-1 provides that any estimating method is acceptable if generally accepted and consistently applied by the contractor. FAR 31.202 requires that costs incurred for the same purpose under like circumstances must always be direct or indirect. This is identical to the CAS 402 requirement. CAS 401 has specific consistency requirements in the estimating and recording of costs.
Cost Accounting Standards
Offerors can be easily confused by the myriad federal government procurement rules and regulations, particularly those related to the CAS. CAS rules and regulations contain differing dollar thresholds for contract coverage, full versus modified CAS coverage, and submission of disclosure statements. To apply the rules and these thresholds properly, it is necessary to take each aspect of the CAS one step at a time.
Step one in the process is to determine when a contract is covered by CAS. Step two is to determine whether full or modified coverage applies to each segment of a contractor’s organization. (A segment is generally an organization that has a separate general and administrative cost pool.) Step three is to determine whether a disclosure statement is needed for each segment.
Each segment has its own determination of full or modified coverage and the need for a disclosure statement. Four individual segments of the same contractor could have one segment with full coverage and a disclosure statement, one segment with modified coverage and a disclosure statement, one segment with full coverage and no disclosure statement, and one segment with modified coverage and no disclosure statement.
Contracts Subject to the Cost Accounting Standards
FAR Part 9903.201-1, CAS Applicability, describes the rules for determining whether a proposed contract or subcontract is exempt from the CAS. Generally, negotiated contracts are subject to the CAS. However, the following categories of contracts and subcontracts are exempt from all CAS requirements:
1. Sealed-bid contracts
2. Negotiated contracts and subcontracts not in excess of the TINA threshold as adjusted for inflation. An order issued by one segment to another segment must be treated as a subcontract
3. Contracts and subcontracts with small businesses
4. Contracts and subcontracts with foreign governments or their agents or instrumentalities
5. Contracts or subcontracts awarded to a foreign concern other than CAS 401 and CAS 402
6. Contracts and subcontracts in which price is set by law or regulation
7. Firm-fixed-priced and fixed-price with economic price adjustment (provided that price adjustment is not based on actual costs incurred) contracts and subcontracts for the acquisition of commercial items
8. Contracts or subcontracts of less than $7.5 million value, provided that at the time of award the business unit of the contractor or subcontractor is not currently performing any CAS-covered contracts or subcontracts valued at $7.5 million or greater
9. Subcontractors under the North Atlantic Treaty Organization Plastic Hulled Minesweeper Ship program to be performed outside the United States by a foreign concern
10. Firm-fixed-price contracts or subcontracts awarded on the basis of adequate price competition without submission of cost or pricing data.
The applicable contract clause (FAR 52.230-2, Cost Accounting Standards, states:
Unless the contract is exempt under 48 CFR 9903.201-1 and 9903.201-2, the provisions of 48 CFR Part 9903 are incorporated herein by reference and the Contractor, in connection with this contract, shall—
The exemptions listed above are the ones referenced in this clause. Thus, this clause may physically be included in a contract. However, if an exemption exists, the contract is not subject to CAS provisions in any manner. Offerors are well advised to state the exemption that applies when a proposal is submitted in the event the exemption is challenged during contract performance.
If a negotiated contract meets any of these exemptions, the contract is not subject to CAS and any questions related to full or modified coverage or disclosure statement submission are irrelevant to this contract.
Full or Modified Coverage
Full coverage is applicable to contractor business units that: (1) receive a single CAS-covered contract award of $50 million or more or (2) received $50 million or more in net CAS-covered awards during its preceding cost accounting period.
Modified CAS coverage requires only that the contractor comply with CAS 401, Consistency in Estimating, Accumulating, and Reporting Costs; CAS 402, Consistency in Allocating Costs Incurred for the Same Purpose; CAS 405, Accounting for Unallowable Costs; and CAS 406, Cost Accounting Standard—Cost Accounting Period. Modified, rather than full, CAS coverage may be applied to a covered contract of less than $50 million value awarded to a business unit that received less than $50 million in net CAS-covered awards in the immediately preceding cost accounting period.
If any contract is awarded with modified CAS coverage, all CAS-covered contracts awarded to that business unit during that cost accounting period must also have modified coverage with the following exception: if the business unit receives a single CAS-covered contract award of $50 million or more, that contract must be subject to full CAS coverage. Thereafter, any covered contract awarded in the same cost accounting period must also be subject to full CAS coverage.
A contract awarded with modified CAS coverage remains subject to such coverage throughout its life, regardless of changes in the business unit’s CAS status during subsequent cost accounting periods. Subcontract awards subject to CAS require the same type of CAS coverage as would prime contracts awarded to the same business unit. In measuring total net CAS-covered awards for a year, a transfer by one segment to another is deemed to be a subcontract award by the transferor.
The applicable contract clause, FAR 52.230-1, Cost Accounting Standards Notices and Certification, states:
II. COST ACCOUNTING STANDARDS—ELIGIBILITY FOR MODIFIED CONTRACT COVERAGE
If the offeror is eligible to use the modified provisions of 48 CFR 9903.201-2(b) and elects to do so, the offeror shall indicate by checking the box below. Checking the box below shall mean that the resultant contract is subject to the Disclosure and Consistency of Cost Accounting Practices clause in lieu of the Cost Accounting Standards clause.
The offeror hereby claims an exemption from the Cost Accounting Standards clause under the provisions of 48 CFR 9903.201-2(b) and certifies that the offeror is eligible for use of the Disclosure and Consistency of Cost Accounting Practices clause because during the cost accounting period immediately preceding the period in which this proposal was submitted, the offeror received less than $50 million in awards of CAS-covered prime contracts and subcontracts. The offeror further certifies that if such status changes before an award resulting from this proposal, the offeror will advise the Contracting Officer immediately.
CAUTION: An offeror may not claim the above eligibility for modified contract coverage if this proposal is expected to result in the award of a CAS-covered contract of $50 million or more or if, during its current cost accounting period, the offeror has been awarded a single CAS-covered prime contract or subcontract of $50 million or more.
Two points from this clause are important. First, if the contract is not subject to CAS, no response is necessary. Second, if the contract is subject to CAS and eligible for modified coverage, it must be claimed here or the contract will be subjected to full CAS coverage.
Cost Accounting Standards Board Disclosure Statement
A new or revised disclosure statement is not required for any contract that is not covered by CAS. Completed disclosure statements are required only in the following circumstances (from 48 CFR 9903.201-2(b)):
(a) A business unit that is selected to receive a CAS-covered contract or subcontract of $50 million or more shall submit a Disclosure Statement before award.
(b) A company which, together with its segments, received net awards of negotiated prime contracts and subcontracts subject to CAS totaling $50 million or more in its most recent cost accounting period, must submit a Disclosure Statement before award of its first CAS-covered contract in the immediately following cost accounting period. However, if the first CAS-covered contract is received within 90 days of the start of the cost accounting period, the contractor is not required to file until the end of 90 days.
(c) When a Disclosure Statement is required, a separate Disclosure Statement must be submitted for each segment whose costs included in the total price of any CAS-covered contract or subcontract exceed $500,000, unless (i) the contract or subcontract is of the type or value exempted or (ii) in the most recently completed cost accounting period the segment’s CAS-covered awards are less than 30 percent of total segment sales for the period and less than $10 million.
(d) Each corporate or other home office that allocates costs to one or more disclosing segments performing CAS-covered contracts must submit a Part VIII of the Disclosure Statement.
(e) Foreign contractors and subcontractors who are required to submit a Disclosure Statement may, in lieu of filing a Form No. CASB-DS-1, make disclosure by using a disclosure form prescribed by an agency of its Government, provided that the Cost Accounting Standards Board determines that the information disclosed by that means will satisfy the objectives of Public Law 100-679. The use of alternative forms has been approved for the contractors of Canada, the United Kingdom and the Federal Republic of Germany.
The CAS contract solicitation provision (FAR 52.230-1) requests that the offeror check one of the following boxes:
(1) Certificate of Concurrent Submission of Disclosure Statement. The offeror hereby certifies that, as a part of the offer, copies of the Disclosure Statement have been submitted as follows: (i) original and one copy to the cognizant administrative contracting officer (ACO) or cognizant Federal agency official authorized to act in that capacity (Federal official), as applicable, and (ii) one copy to the cognizant Federal auditor.
(Disclosure must be on Form No. CASB DS-1 or CASB DS-2, as applicable. Forms may be obtained from the cognizant ACO or Federal official and/or from the loose-leaf version of the Federal Acquisition Regulation.)
Date of Disclosure Statement:
Name and Address of Cognizant ACO or Federal Official Where Filed:
The offeror further certifies that the practices used in estimating costs in pricing this proposal are consistent with the cost accounting practices disclosed in the Disclosure Statement.
(2) Certificate of Previously Submitted Disclosure Statement. The offeror hereby certifies that the required Disclosure Statement was filed as follows:
Date of Disclosure Statement:
Name and Address of Cognizant ACO or Federal Official Where Filed:
The offeror further certifies that the practices used in estimating costs in pricing this proposal are consistent with the cost accounting practices disclosed in the applicable Disclosure Statement.
(3) Certificate of Monetary Exemption. The offeror hereby certifies that the offeror, together with all divisions, subsidiaries, and affiliates under common control, did not receive net awards of negotiated prime contracts and subcontracts subject to CAS totaling $50 million or more in the cost accounting period immediately preceding the period in which this proposal was submitted. The offeror further certifies that if such status changes before an award resulting from this proposal, the offeror will advise the Contracting Officer immediately.
(4) Certificate of Interim Exemption. The offeror hereby certifies that (i) the offeror first exceeded the monetary exemption for disclosure, as defined in (3) of this subsection, in the cost accounting period immediately preceding the period in which this offer was submitted and (ii) in accordance with 48 CFR 9903.202-1, the offeror is not yet required to submit a Disclosure Statement. The offeror further certifies that if an award resulting from this proposal has not been made within 90 days after the end of that period, the offeror will immediately submit a revised certificate to the Contracting Officer, in the form specified under subparagraphs (c)(1) or (c)(2) of Part I of this provision, as appropriate, to verify submission of a completed Disclosure Statement.
CAUTION: Offerors currently required to disclose because they were awarded a CAS-covered prime contract or subcontract of $50 million or more in the current cost accounting period may not claim this exemption (4). Further, the exemption applies only in connection with proposals submitted before expiration of the 90-day period following the cost accounting period in which the monetary exemption was exceeded.
In brief, if an offeror is required to submit a disclosure statement with a proposal, it should check item 1. If it has a disclosure statement on file, it should check item 2. If it is not required to file a disclosure statement, it should check item 3. If it is within the first 90 days of a cost accounting period and the prior year’s CAS awards have triggered a need to submit a disclosure statement for the current year, it should check item 4. If the contract is not subject to the CAS, it does not need to check any item and should note that the contract is exempt from CAS requirements.
PRICE AND COST REALISM
Cost realism analysis is the process of independently reviewing and evaluating specific elements of each offeror’s proposed cost estimate to determine whether the estimated proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s technical proposal. This is important in the government contracting environment to ensure that contractors do not underbid in a manner that jeopardizes contract performance. Proposals may be rejected or downgraded for being priced unrealistically low.
Cost realism analysis is performed on cost-reimbursement contracts to determine the probable cost of performance for each offeror. The (government-evaluated) probable cost may differ from the proposed cost and should reflect the government’s best estimate of the cost of any contract that is most likely to result from the offeror’s proposal. The probable cost is used for purposes of evaluation to determine the best value. In a proposal evaluation process, the probable cost is determined by adjusting each offeror’s proposed cost (and fee when appropriate), to reflect any additions or reductions in cost elements to realistic levels based on the results of the cost realism analysis.
Cost realism analyses may also be used on competitive fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts when new requirements may not be fully understood by competing offerors, there are quality concerns, or past experience indicates that contractors’ proposed costs have resulted in quality or service shortfalls. Results of the analysis may be used in performance risk assessments and responsibility determinations. However, proposals are evaluated using the criteria in the solicitation, and the offered prices may not be adjusted as a result of the analysis.
The DCAA audit program for cost and price realism is detailed in Appendix A.1
ESTIMATING SYSTEMS—FAR
FAR 15.407-5, Estimating systems, contains but minimal, general guidance on estimating systems. Detailed requirements are found in the DoD FAR Supplement, the business systems rules, and the DCAA contract audit manual. The FAR provision merely states that, when appropriate, the cognizant reviewer:
… shall establish and manage regular programs for reviewing selected contractors’ estimating systems or methods, in order to reduce the scope of reviews to be performed on individual proposals, expedite the negotiation process, and increase the reliability of proposals. The results of estimating system reviews shall be documented in survey reports [which notify contracting official of any estimating system deficiencies]…. Significant deficiencies not corrected by the contractor shall be a consideration in subsequent proposal analyses and negotiations.
ESTIMATING SYSTEMS—DEFENSE FAR SUPPLEMENT
Detailed estimating system requirements are found in the Defense FAR Supplement (DFARS) 215.407-5–7. According to this provision, an acceptable estimating system is one that is established, maintained, reliable, and consistently applied and produces verifiable, supportable, and documented cost estimates.
Policy
DoD policy is that all contractors must have acceptable estimating systems that consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices. Beyond that, larger contractors are subjected to periodic system reviews. However, all DoD contractors are expected to have an acceptable system.
A large business contractor is subject to estimating system disclosure, maintenance, and review requirements if: (1) 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 (2) 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).
A contracting officer determines the acceptability of the disclosure and approves or disapproves the system and pursues correction of any deficiencies. The reviewer conducts estimating system reviews.
Characteristics of an Acceptable System
The DFARS identifies an acceptable estimating system as one that provides for the use of appropriate source data, utilizes sound estimating techniques and good judgment, maintains a consistent approach, and adheres to established policies and procedures. More specifically, an acceptable system:
1. Establishes clear responsibility for preparation, review, and approval of cost estimates. The government seeks to have assurances that management is involved in the process of estimating and that any resulting estimates are fully supported by management.
2. Provides a written description of the organization and duties of the personnel responsible for preparing, reviewing, and approving cost estimates. Established, written policies and procedures provide a basis of an audit review of the validity of the policies and procedures and whether a contractor is following established procedures. Many contractors do not have meaningful, written policies and procedures and others have such detailed procedures that keeping them current is almost impossible.
3. Assures that relevant personnel have sufficient training, experience, and guidance to perform estimating tasks in accordance with the contractor’s established procedures. Training of personnel is important in any subject matter and particularly so with estimating techniques.
4. Identifies the sources of data and the estimating methods and rationale used in developing cost estimates. This is the basis of estimate (BOE) that provides the support for an estimate. This should be prepared as the estimate is being made; do not wait until the reviewer arrives at the door.
5. Provides for appropriate supervision throughout the estimating process. Similar to item 1, this establishes management involvement.
6. Provides for consistent application of estimating techniques. This aspect is problematic because situations differ and consistent application for common situations may be good, but when the circumstances differ, different techniques may be required. Most reviewers prioritize consistency over any differing circumstance justifications.
7. Provides for detection and timely correction of errors. This is a good idea.
8. Protects against cost duplication and omissions. This is also a good idea. Even in the smallest of contractor organization, duplications and omissions can occur if written policies and procedures are not established.
9. Provides for the use of historical experience, including historical vendor pricing information, where appropriate. Reviewers often do not place sufficient emphasis on where appropriate. Historical data are important but are not determinative of an appropriate estimate.
10. Requires use of appropriate analytical methods. Naturally—but opinions may vary on what is appropriate.
11. Integrates information available from other management systems, where appropriate. This is a good idea.
12. Requires management review, including verification that the company’s estimating policies, procedures, and practices comply with this regulation. Periodic reviews are a good practice.
13. Provides for internal review of and accountability for the acceptability of the estimating system, including the comparison of projected results to actual results and an analysis of any differences. This is a logical step as well.
14. Provides procedures to update cost estimates in a timely manner throughout the negotiation process. This is directed at the issue of defective pricing and providing current, accurate, and complete cost or pricing data.
15. Addresses responsibility for review and analysis of the reasonableness of subcontract prices. This aspect is the issue of the pricing of subcontracts. As discussed in Chapters 9 and 13, considerable disagreements arise over the timing of this process. The relevant criterion is that this must be accomplished before the subcontract price is established. However, the government often wants this done before the prime contract price is negotiated—despite the fact that the FAR does not require such timing.
Indications of Potential Deficiencies
The DFARS also provides indications of potentially significant estimating deficiencies. Most of these are merely the counterpoints of the preceding characteristics:
1. Failure to ensure that historical experience is available to and utilized by cost estimators, where appropriate. Again, the operative term is where appropriate.
2. Continuing failure to analyze material costs or failure to perform subcontractor cost reviews as required. This is logical. However, remember that the government has a differing view of the term as required based primarily on the issue of the timing of such reviews. The government would like to receive these reviews before the negotiation of the prime contract price, but the regulations require them only before the conclusion of negotiations on the subcontract price.
3. Consistent absence of analytical support for significant proposed cost amounts. This is properly worded as requiring analytical support, not necessarily historical data.
4. Excessive reliance on individual personal judgments where historical experience or commonly utilized standards are available. This is problematic, in that it shows the government’s preference for historical data over judgments based on the future conditions under which goods and services are to be provided.
5. Recurring significant defective pricing findings within the same cost element(s). This is not necessarily evidence of a defective system.
6. 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. This requirement is founded on a fraud situation encountered by the government in the mid-1980s, where a contractor deliberately did not provide current purchasing data to estimators.
7. Failure to provide established policies, procedures, and practices to persons responsible for preparing and supporting estimates. This would have to be a deliberate failure to be significant.
System Deficiency Process
A reviewer is to document findings and recommendations in a report to the contracting officer. If the reviewer identifies any significant estimating system deficiencies, the report describes the deficiencies in sufficient detail to allow the contracting officer to understand the deficiencies. However, in recent years this description has become scant.
The contracting officer reviews all reviewer findings and recommendations. If there are no significant deficiencies, the contractor is notified in writing that the estimating system is acceptable and approved. If the contracting officer finds one or more significant deficiencies, the contracting officer is to: (1) promptly make an initial written determination on any significant deficiencies and notify the contractor in writing, providing a description of each significant deficiency in sufficient detail to allow the contractor to understand the deficiency; (2) request the contractor to respond in writing to the initial determination within 30 days; and (3) promptly evaluate the contractor’s responses to the initial determination, in consultation with the reviewer or functional specialist, and make a final determination. A contractor is well advised to respond quickly to these issues. A prompt corrective action plan can go far in avoiding system problems and issues with individual proposals.
After receiving contractor responses, the contracting officer is to make a final determination and notify the contractor in writing that either: (1) the contractor’s estimating system is acceptable and approved and no significant deficiencies remain or (2) significant deficiencies remain. The notice must identify any remaining significant deficiencies, and indicate the adequacy of any proposed or completed corrective action.
At this point, the contracting officer will: (1) request that the contractor either correct the deficiencies or submit an acceptable corrective action plan within 45 days, (2) disapprove the system, and (3) withhold payments in accordance with the clause at 252.242-7005, Contractor Business Systems. The contractor’s corrective action is then to be monitored by the contracting officer. The contracting officer will subsequently approve a previously disapproved estimating system and notify the contractor when the contracting officer determines that no significant deficiencies remain.
The DCAA audit program for estimating systems is detailed in Appendix B and the internal central program in appendix F.
DFARS Checklist
Illustration 8-3 shows the DFARS proposal checklist (76 FR 75512, December 2, 2011) for assuring complete proposal contents.
ILLUSTRATION 8-3: DFARS Proposal Adequacy Checklist
FORWARD PRICING RATE AGREEMENTS
FAR 42.1701 provides the basis for forward pricing rate agreements (FPRAs), which are negotiated, advance agreements on direct labor and indirect cost rates. FPRAs are not popular due to the difficulties in obtaining agreements on rates, particularly as related to inflation or escalation factors. and the fact that they do not protect from TINA issues when business volume is increasing or from understated rates when business volume is decreasing.
FPRAs may be requested by either a contractor or a contracting officer. In determining whether to establish such an agreement, the contracting officer should consider whether the benefits are worth the effort of establishing and monitoring the agreement. Normally, FPRAs are negotiated only with contractors that have a significant volume of government contract proposals.
If an FPRA is to be established, the contracting officer obtains the contractor’s forward pricing rate proposal and requires that it include cost or pricing data that are accurate, complete, and current as of the date of submission. Upon completing negotiations, the contracting officer prepares a price negotiation memorandum and forwards copies of the memorandum and FPRA to the cognizant reviewer and to all contracting offices that are known to be affected by the FPRA.
Contracting officers may not require certification at the time of agreement for data supplied in support of FPRAs or other advance agreements. When a forward pricing rate agreement or other advance agreement is used to price a contract action that requires a certificate, the certificate supporting that contract action covers the data supplied to support the FPRA or other advance agreement and all other data supporting the action.
The FPRA provides specific terms and conditions covering notification, expiration, application, and data requirements for systematic monitoring to ensure the validity of rates. The agreement provides for cancellation at the option of either party and requires the contractor to submit to the contracting officer and cognizant contract reviewer any significant change in cost or pricing data used to support the FPRA.
Contracting officers will use FPRA rates as bases for pricing all contracts, modifications, and other contractual actions to be performed during the period covered by the agreement. Conditions that may affect the agreement’s validity must be reported promptly to the contracting officer. If the contracting officer determines that a changed condition invalidates the agreement, the contracting officer notifies all interested parties of the extent of its effect and the status of efforts to establish a revised FPRA.
When an FPRA is invalid, the contractor should submit and negotiate a new proposal to reflect the changed conditions. If an FPRA has not been established or has been invalidated, the contracting officer will issue a forward pricing rate recommendation to buying activities with documentation to assist negotiators. In the absence of an FPRA or this recommendation, the contracting officer includes support for the rates used.
According to the DCAA/Defense Contract Management Agency (DCMA) rules of engagement regarding forward pricing rates, FPRAs will be used by DoD contracting officers to set prenegotiation objectives. When no FPRA exists, if DCAA recommendations are available, these should be used by the DCMA as a basis for the recommendations provided to DoD contracting officers. During negotiations, contracting officers may deviate from FPRAs when there are sound reasons for doing so. For example, a contracting officer may, as a result of more current data, determine that the contractor’s FPRAs do not accurately reflect the amount of direct-labor hours proposed for a current action, thus making the allocation base too low or too high. However, DoD expects that contracting officers discuss such exceptions with the DCMA corporate administrative contracting officer (but not DCAA) to document the rationale for their exceptions in their business clearance or negotiation memorandum.
The DCAA audit program for FPRAs is detailed in Appendix C.
DEFENSE CONTRACT AUDIT AGENCY PROPOSAL REVIEWS
The DoD greatly reduced the quantity of price proposal reviews to be performed by DCAA, and DCAA in turn increased the intensity of the reviews actually performed in late 2010. Price proposals for fixed-price-type contracts less than $10 million in value will now seldom be reviewed, as well as cost-type contract proposals less than $100 million in value. However, for fixed-price proposals more than $100 million and cost-type proposals more than $250 million in value, the audit will be much more in-depth than before. For these significant proposals, the DCAA will conduct a detailed walkthrough of each proposal before an audit begins. This process could take as much as a full week and might involve the contracting officer and every contractor employee who participated in the preparation of the proposal.
The most commonly reported DCAA issues with proposals are:
1. No estimate or budget for each individual year covered by the proposal
2. Use of judgmental estimates rather than historical costs or other factors
3. Vendor prices that are not sufficiently current
4. No cost or price analysis of subcontractor prices
5. Insufficient support of scrap costs
6. Estimating other direct costs as a percentage of direct costs
7. Insufficient supporting documentation.
The first of these alleged deficiencies occurs because most contractors do not have budgets or estimates beyond two or three years—some have but one year budgeted. Years beyond existing budgets are estimated by using the estimated rate for the previous year. A solution is sometimes to escalate the most recent budget by X percent per year and the base by X percent per year, thus producing individual-year budgets (all with the same rate). The issues numbered 2, 3, and 7 are subjective and must be viewed in terms of the facts of each occurrence. Issue number 4 does not involve a requirement by the FAR at the time of prime contract proposal evaluation; however, as noted elsewhere in this book, government personnel often do not readily accept this. This misconception is fostered by government reviewers who advocate settling all subcontract prices before negotiation of the prime contract, that all subcontracts should be cost reimbursable, and other equally impractical actions. Issue number 5 is often a legitimate issue that can be solved by estimating quantities of scrap and pricing those estimates rather than applying a percentage to the total material costs. Issue number 6 is often just a quirk of the reviewer, because such cost-estimating relationships are acceptable in pricing government contracts.
After a reviewer has submitted a report on a price proposal evaluation to the contracting officer, price negotiation will take place if the contractor has been selected as a potential candidate for the contract. Since this phase of the procurement process is a negotiation, each party will have to give and take on the final price. The contractor must realize that the contracting officer is going to question certain costs going into the total proposed price, based on advice furnished by the reviewer or other technical advisors. In the price negotiation, the contractor should be fully alert to the implications of that price for the company.
The DCAA audit programs for proposals are detailed in Appendices D and E.
PROPOSAL PRESENTATION
The proposal presentation must be responsive to the solicitation requirements and formats. A wide variety of formats due to conditions such as services versus manufacturing (or even construction), options years, multiple line items, and so on determine precisely how a proposal should be presented to the government. A uniform format is not practical. However, Illustrations 8-4 and 8-5 are in a general format usable for both manufacturing and services. Each item must be supported by a narrative basis of estimate and as many additional worksheets as needed to explain the proposed costs.
Note
1. All DCAA audit programs and guidance materials are available at the DCAA Web site (www.dcaa.mil) under Standard Audit Programs: Directory of Audit Programs (AP) and Other Audit Guidance (OAG) Documents.
ILLUSTRATION 8-4: Price Proposal, Acme Manufacturing Company
A-1 and A-2: Explain basis for hours, explain basis for rate and basis for escalation. B-1, B-2 and B-3: Explain basis for selection of vendor and determining price reasonableness. C-1, C-2 and C-3: Explain basis for estimated rate and logic of allocation base. D: Detail all other direct costs, showing basis for (1) need, (2) source selection, and (3) price. All notes may require additional schedules.
ILLUSTRATION 8-5: Price Proposal, Acme Services Company
A-1 and A-2: Explain basis for hours, explain basis for rate and basis for escalation. B-1, B-2 and B-3: Explain basis for selection of vendor and determining price reasonableness. C-1, C-2 and C-3: Explain basis for estimated rate and logic of allocation base. D: Detail all other direct costs, showing basis for (1) need, (2) source selection, and (3) price. All notes may require additional schedules.