Cost Realism

What do you mean by "input"? Do you want someone to tell you how to perform a cost-realism analysis?

Ask your contracting officer. I am sure people will tell you methods, but it might be of little value if your agency/ department/ PCO is used to certain approaches. You may want to come back onto this board for further advice once you have a baseline, or questions from that conversation.

FAR11, why are you concerned with doing a cost realism analysis of labor rates and indirect cost rates? They are what they are. It seems to me that a more useful analysis would be of labor categories and the mix of labor to determine if they are appropriate for the work proposed.

Retread:

An offeror might propose rates for prospective employees that it does not currently employ. The rates are not actual, but what the offeror thinks it would have to pay to hire the people it would need. In that case, the question might be whether the proposed rates are realistic in light of what qualified people are getting in the market in question.

I am interested in hearing other's feedback on their methodology for cost realism. Most RFPs that I have seen utilize a hierarchal system for direct and indirect labor rates such as the following:

Direct Labor: Payroll, DCMA FPRR/FPRA, letters of intent, contractor's methodology

Indirect: DCMA FPRR/FPRA, historical actuals

Many contractors do not give the requested documents or give a methodology that is difficult to verify. I am looking for another alternative to determine realism (i.e. someone is not lowballing) in the event that substantial data is not given.

Also, I agree that labor category definitions/mix is important but responses from contractors often just repeat what the government provided.

FAR11:

Could you get the understanding you want using an oral presentation?

The presentation could identify the processes they used, the soundness, and if it was executed pursuant to the outlined process or any other requirements.

I cant figure out how to paste a link here, but please check out GAO case B-408959: Jan 6, 2014, QMX Support Services. This is a statistical method that I think works well if LOE hours and mix are provided in the solicitation. For direct rates: the number of data points (offers) to have a justifiable standard deviation would need to be greater than five, presumably (as supported by GAO in the provided case). I have also seen use of glassdoor or salary.com and their standard deviations, if applicable to the situation. For indirect rates: many times you will not have FPRR/FPRA for small businesses. In this case you can use the provisional billing rates established by DCMA, or request actuals (Government channels first per FAR 15.403-3(a)(1)). By the way, this case is not clear on if the statistical analysis was conducted at each discrete cost element level or at the burdened labor rate level, to include indirect costs and fee. It is possible the Navy may have verified the direct rates via market tools, and the indirect rates via DCMA, but actually ran the statistical analysis at the burdened level to ascertain cost realism. I would really like to know the answer to this; or if someone has a differing opinion based on the read please provide (note that the comparative analysis as described was at the "proposed labor rate"- is that direct or burdened?)

Here is an excerpt from the case:

The agency received five proposals by the RFP’s May 29 closing date....With regard to the agency’s cost evaluation, the record reflects that the agency examined the cost elements of each proposal and conducted a statistical analysis of proposed labor rates by comparing them to the averages of the labor rates proposed for each labor category. AR, Tab 13, Business Clearance Memorandum, at 16-18. Since TechFlow’s rates were within two standard deviations of the average of the rates proposed, the agency considered them realistic. Id. Additionally, the record reflects that the agency obtained and considered audit information from the Defense Contract Management Agency (DCMA) in finding TechFlow’s proposed costs realistic. Id. at 19-23.

Just my thoughts on the proposed topic, but hopefully it spurs some new ideas.

JMG - That was the other method that I have seen but has been somewhat controversial with industry as to realistic rates. What happens if 3 of 6 contractors are "buying in" then the statistical analysis would be unrealistically low? I was trying to see if I could find another alternative then using the data set proposed by bidders. I'm not sure what makes up the data on salary.com and glassceiling.com to trust the information.

Possible, but you how could you determine the costs are unrealistically low in this manner? I don't think, as long as you are consistent, the realism analysis would be successfully protested. It would be a reasonable and realistic representation of what the market offered.

You people ever hear of the Bureau of Labor Statistics? http://www.bls.gov/bls/blswage.htm

JMG, while the methodology of using average rates proposed is allowable, it might not be good business sense to rely soley on that techinque and may lead to issues in performance. Especially, in complex acquisitions that require a high skill set and if the average rates proposed were significantly lower than the median rates on the BLS. I would caution againist using the average rates proposed approach exclusively for realism

Michael700- Agreed. This approach should not be used to developmental or complex acquisitions. For A&AS where its CPFF LOE where the solicitation of provides the estimated hours and labor mix, it is a sound approach; and supported by GAO if you read the case.

Agreed, I read it. No matter what approach you use, common sense and knowing why they are doing it is key vs. people just looking at data and accepting the data without any understanding of it . The latter is where problems come into play.