WINNING PROPOSALS AND PRICING/COST STRATEGIES:
A Guide for the Federal Contractor
Michael A. Hordell
Charles L. Wilkins
WINNC
Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor v
Table of ContentsIntroduction ............................................................................................................................................................i
About this Guide ..................................................................................................................................................iii
Chapter 1 How the Government Does Business and Why
Why do business with the Federal Government? ...............................................................................................1-1
Monopsony and the Acquisition Process ...........................................................................................................1-2
Overview of Procurement Techniques ...............................................................................................................1-3
Sealed bidding .............................................................................................................................................1-3
Negotiated contracts ..............................................................................................................................1-4
Types of Contracts ..............................................................................................................................................1-5
Fixed-Price — FAR Subpart 16.2. ..............................................................................................................1-5
Firm-Fixed-Price (FFP) ..........................................................................................................................1-5
Firm-Fixed-Price with Economic Price Adjustment (FFP w/EPA) ........................................................1-6
Fixed-Price Redeterminable (FPR) ........................................................................................................1-6
Fixed-Price Incentive (FPI) ....................................................................................................................1-6
Fixed-Price Award Fee (FPAF) ..............................................................................................................1-7
Accounting implications ........................................................................................................................1-7
Cost Reimbursement — FAR Subpart 16.3 ................................................................................................1-7
Cost-Plus-Fixed-Fee (CPFF) ..................................................................................................................1-7
Cost-Plus-Incentive-Fee (CPIF). ............................................................................................................1-8
Cost-Plus-Award-Fee (CPAF) ................................................................................................................1-8
Cost Type................................................................................................................................................1-8
Cost Sharing ...........................................................................................................................................1-8
Contractual instruments from the financial perspective ..............................................................................1-8
Understanding contract types in applying the magic circle .................................................................1-10
Accounting implications of an effective cost collection system .........................................................1-13
Financial and Cost Rules — Guidance in Federal Procurement ......................................................................1-14
Public laws ................................................................................................................................................1-14
The Office of Federal Procurement Policy (OFPP) Act .......................................................................1-15
The Competition in Contracting Act (CICA) .......................................................................................1-15
The Truth in Negotiations Act (TINA).................................................................................................1-15
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The Contract Disputes Act (CDA) .......................................................................................................1-15
The Federal Acquisition Streamlining Act of 1994 (FASA) ................................................................1-16
The Federal Acquisition Reform Act of 1996 (FARA) ........................................................................1-17
Other laws ............................................................................................................................................1-17
Federal Acquisition Regulation (FAR) .....................................................................................................1-18
Agency Supplemental Regulations ...........................................................................................................1-19
Cost Accounting Standards (CAS) ............................................................................................................1-20
The FAR cost principles .......................................................................................................................1-21
Using the magic circle to describe CAS ..............................................................................................1-27
What Are General and Administrative (G&A) Costs? ..............................................................................1-28
Generally Accepted Accounting Principles (GAAP) ................................................................................1-29
FAR Cost Principles — Part 31 ................................................................................................................1-30
Generally Accepted Auditing Standards (GAAS) .....................................................................................1-30
Understanding the significance of cost rules and issues in proposal development ..............................1-30
Parameters for using the magic circle .............................................................................................1-31
Understanding the magic circle .......................................................................................................1-35
Intermediate or re-allocable cost pool .............................................................................................1-39
Overhead cost pools — the retroactive effect of rates ....................................................................1-41
Allowable versus unallowable cost .................................................................................................1-44
General and administrative cost pools.............................................................................................1-48
Independent Research & Development/Bid & Proposal Costs .......................................................1-52
Unallowable costs in G&A ..............................................................................................................1-53
Charts ...............................................................................................................................................................1-55
Figures. .............................................................................................................................................................1-61
Chapter 2 Government Procurement Process, Information Gathering and MarketingGovernment Procurement Process .....................................................................................................................2-1
Determining the agency’s need ...................................................................................................................2-2
Acquisition plan ..........................................................................................................................................2-2
Developing the request for proposals .........................................................................................................2-2
The initial steps of issuing the RFPs ..........................................................................................................2-3
Source selection and evaluation process .....................................................................................................2-3
Information Gathering .......................................................................................................................................2-4
FOIA as an information gathering tool .......................................................................................................2-5
Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor vii
Information gathering steps to take ........................................................................................................2-6
Stay consistent ........................................................................................................................................2-6
Get to know the key personnel ....................................................................................................................2-6
Invite key personnel to get to know your company ...............................................................................2-7
Marketing ...........................................................................................................................................................2-8
Unsolicited proposals ..................................................................................................................................2-9
Lobbying ...................................................................................................................................................2-10
Chapter 3 Preparing Your Company for Government Business
Solicitations ........................................................................................................................................................3-2
Sealed bids ..................................................................................................................................................3-2
Request for Proposals/Quotations ...............................................................................................................3-3
Full and open competition ..........................................................................................................................3-4
Small business classifications ................................................................................................................3-4
Limitations .............................................................................................................................................3-5
Before the RFP is issued ....................................................................................................................................3-5
Initial Review of RFP .........................................................................................................................................3-6
Now is the time to ask questions .................................................................................................................3-7
Understanding the contract .........................................................................................................................3-8
The basic parts of the contract ...............................................................................................................3-8
The ‘changes’ clause ..............................................................................................................................3-8
Assessing contractor risks .........................................................................................................................3-10
Special contract clauses........................................................................................................................3-11
Understanding the Scope of Work ............................................................................................................3-12
Developing Statements of Work ...............................................................................................................3-13
Proposals ..............................................................................................................................................3-13
Making the proposal process easier .....................................................................................................3-14
Pricing and estimating strategies ..............................................................................................................3-14
What is certified cost or pricing data? ..................................................................................................3-15
Commercial pricing .............................................................................................................................3-15
Indirect/Overhead Rates ............................................................................................................................3-17
The role of the entity’s business teams and leadership ........................................................................3-19
Now May Be the Time to Protest .....................................................................................................................3-20
Setting milestones .....................................................................................................................................3-20
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The Bid/No-Bid Decision ................................................................................................................................3-20
Market research .........................................................................................................................................3-21
Historical data ...........................................................................................................................................3-21
Know the competition ...............................................................................................................................3-21
Business strategy .......................................................................................................................................3-21
Chapter 4 The Proposal Development Process
The Initial Process ..............................................................................................................................................4-1
Establishing the winning team ....................................................................................................................4-1
Program manager ...................................................................................................................................4-2
Proposal manager ...................................................................................................................................4-2
Technical manager .................................................................................................................................4-3
Other team members ..............................................................................................................................4-3
Evaluating for potential organizational conflict of interest ........................................................................4-3
Underlying principles of OCI.................................................................................................................4-3
What to look for during the assessment .................................................................................................4-4
What is systems engineering? ................................................................................................................4-5
Additional assessment considerations ....................................................................................................4-5
OCI waivers ...........................................................................................................................................4-5
Mitigation plans .....................................................................................................................................4-5
Evaluating personal conflicts of interest .....................................................................................................4-6
Underlying principles of personal conflicts of interest .........................................................................4-6
What to look for during the assessment .................................................................................................4-6
Mitigation plans .....................................................................................................................................4-7
The ‘kick-off’. ............................................................................................................................................4-7
Establishing procedures for the proposal team ...........................................................................................4-8
Establishing a format for the proposal response .........................................................................................4-8
Developing the compliance checklist. ........................................................................................................4-9
The proposal/contract work breakdown structure .....................................................................................4-10
The Continuing Process ...................................................................................................................................4-11
Developing the risk analysis .....................................................................................................................4-11
Subcontracting decisions ..........................................................................................................................4-11
Teaming/joint ventures ..............................................................................................................................4-13
Make or buy determination .......................................................................................................................4-16
Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor ix
Chapter 5 Proposal Themes and Content — Telling Your Story
Proposal Themes ................................................................................................................................................5-1
Discriminators .............................................................................................................................................5-2
Key issues ...................................................................................................................................................5-2
Proposal themes/strengths/strategies ..........................................................................................................5-3
Customer needs and constraints ..................................................................................................................5-3
Proposal Content ................................................................................................................................................5-4
Technical volume ........................................................................................................................................5-5
Management volume ...................................................................................................................................5-5
Cost or pricing volume ................................................................................................................................5-6
Understanding the factors of costs .........................................................................................................5-6
Past performance .......................................................................................................................................5-11
Executive summaries ................................................................................................................................5-12
Letters of commitment/agreements ...........................................................................................................5-12
Marketing materials ..................................................................................................................................5-12
Résumés, certifications, permits and licenses ...........................................................................................5-13
Title page ...................................................................................................................................................5-13
Taking exception to terms and conditions.................................................................................................5-13
Chapter 6 Proposal Organization, Preparation and Delivery
Proposal Organization .......................................................................................................................................6-1
Organizing the response ..............................................................................................................................6-1
Page limitations ......................................................................................................................................6-1
Formats and page sizes...........................................................................................................................6-2
Compliance matrix .................................................................................................................................6-2
Proposal volume consistency ......................................................................................................................6-2
Graphics/artwork/photographs ....................................................................................................................6-2
Production and binding ...............................................................................................................................6-3
Quality control ............................................................................................................................................6-3
Protecting proprietary/business confidential data .......................................................................................6-4
Final Proposal Preparation .................................................................................................................................6-4
Management review and approval ..............................................................................................................6-4
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Red Team reviews .......................................................................................................................................6-4
Legal analysis and protest prevention .........................................................................................................6-5
Proposal Delivery ...............................................................................................................................................6-5
Chapter 7 The Next Steps and Follow Up
Next Steps ..........................................................................................................................................................7-1
Competitive range determination ................................................................................................................7-1
Award on initial proposals ..........................................................................................................................7-2
Discussions ................................................................................................................................................7-2
Oral presentations .......................................................................................................................................7-3
Review the solicitation ...........................................................................................................................7-3
Ask about topics to be covered ..............................................................................................................7-4
Ask if presentation will be used solely for evaluation or is it part of the offer ......................................7-4
Mark all briefing materials with a proprietary legend ...........................................................................7-4
Avoid problems ......................................................................................................................................7-5
Final proposal revision ................................................................................................................................7-5
Proposal party .............................................................................................................................................7-6
Pre-award survey ........................................................................................................................................7-6
Award ..........................................................................................................................................................7-6
The Follow-up ....................................................................................................................................................7-7
Debriefing — Awardee ................................................................................................................................7-7
Debriefing — disappointed bidder/offeror ..................................................................................................7-7
Sample debriefing questions ..................................................................................................................7-9
What to do after the briefing ................................................................................................................7-10
Protest — file or walk away? ....................................................................................................................7-11
‘Lessons learned’ analysis .........................................................................................................................7-11
Preparing for the next time .......................................................................................................................7-12
Chapter 8 Government Audits
Audit Considerations/Risks ................................................................................................................................8-1
Primary audit agencies ................................................................................................................................8-1
Entrance and exit conferences ....................................................................................................................8-3
Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor xi
Pre-award audits/survey ..............................................................................................................................8-3
Post-award audits ........................................................................................................................................8-3
Managing Audits ................................................................................................................................................8-4
Managing DCAA Audits (10 Keys to Success) .................................................................................................8-4
What is a successful DCAA audit? .............................................................................................................8-4
The 10 recommendations ............................................................................................................................8-5
Recommendation 1: Insist on an entrance conference ...........................................................................8-5
Recommendation 2: Appoint an internal liaison ....................................................................................8-6
Recommendation 3: Assemble the management team ...........................................................................8-7
Recommendation 4: Establish an accurate, accessible record-keeping system .....................................8-7
Recommendation 5: Be responsive ........................................................................................................8-8
Recommendation 6: Maintain a detailed log .........................................................................................8-9
Recommendation 7: Do not allow the audit to exceed the agreed scope ...............................................8-9
Recommendation 8: Insist on a list of required interviews ..................................................................8-10
Recommendation 9: Review the preliminary findings at the function/department level .....................8-11
Recommendation 10: Insist on an exit conference at the company level ............................................8-11
Conclusion: 10 steps can make for a successful audit process ...........................................................8-12
Conclusion
Resources: ExhibitsExhibit A: Standard Form 26 ............................................................................................................................R-3
Exhibit B: CPIF Contract — Cost Over- and Under-Run Implication .............................................................R-4
Exhibit C: Key Clauses .....................................................................................................................................R-5
Exhibit D: Truth in Negotiations Act ..............................................................................................................R-49
Exhibit E: Cost Accounting Standards ............................................................................................................R-65
Exhibit F: Helpful Web Sites ..........................................................................................................................R-75
Exhibit G: Standard FOIA Letter ....................................................................................................................R-82
Exhibit H: Business Opportunity Evaluation Form ........................................................................................R-83
Exhibit I: Sample Survey Form.......................................................................................................................R-85
Exhibit J: GAO Protest Timetable...................................................................................................................R-87
Exhibit K: Proposal Preparation Schedule ......................................................................................................R-90
Exhibit L: Review Team Response Sheet .......................................................................................................R-93
Exhibit M: Proposal Assignment Chart.........................................................................................................R-102
Exhibit N: Solicitation Compliance Checklist ..............................................................................................R-103
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Exhibit O: Sample Due Diligence Checklist ................................................................................................. R-110
Exhibit P: Proposal Theme Summary Sheet ................................................................................................. R-113
Exhibit Q: Pricing Schedule Example........................................................................................................... R-114
Exhibit R ....................................................................................................................................................... R-116
Standard Form 1403 ............................................................................................................................... R-116
Standard Form 1404 ............................................................................................................................... R-118
Standard Form 1405 ............................................................................................................................... R-119
Standard Form 1406 ...............................................................................................................................R-123
Standard Form 1407 ...............................................................................................................................R-125
Standard Form 1408 ...............................................................................................................................R-128
Exhibit S: Sample Debriefing Request ..........................................................................................................R-130
Index