Tab A
215.404-71-4 Facilities capital employed.
(a) Description. This factor focuses on encouraging and rewarding capital investment in facilities that benefit DoD. It recognizes both the facilities capital that the contractor will employ in contract performance and the contractor's commitment to improving productivity.
(b) Contract facilities capital estimates. The contracting officer shall estimate the facilities capital cost of money and capital employed using—
(1) An analysis of the appropriate Forms CASB-CMF and cost of money factors (48 CFR 9904.414 and FAR 31.205-10); and
(2) DD Form 1861, Contract Facilities Capital Cost of Money.
(c) Use of DD Form 1861. See PGI 215.404-71-4(c) (Pop-up Window or PGI Viewer Mode) for obtaining field pricing support for preparing DD Form 1861.
(1) Purpose. The DD Form 1861 provides a means of linking the Form CASB-CMF and DD Form 1547, Record of Weighted Guidelines Application. It—
(i) Enables the contracting officer to differentiate profit objectives for various types of assets (land, buildings, equipment). The procedure is similar to applying overhead rates to appropriate overhead allocation bases to determine contract overhead costs.
(ii) Is designed to record and compute the contract facilities capital cost of money and capital employed which is carried forward to DD Form 1547.
(2) Completion instructions. Complete a DD Form 1861 only after evaluating the contractor's cost proposal, establishing cost of money factors, and establishing a prenegotiation objective on cost. Complete the form as follows:
(i) List overhead pools and direct-charging service centers (if used) in the same structure as they appear on the contractor's cost proposal and Form CASB-CMF. The structure and allocation base units-of-measure must be compatible on all three displays.
(ii) Extract appropriate contract overhead allocation base data, by year, from the evaluated cost breakdown or prenegotiation cost objective and list against each overhead pool and direct-charging service center.
(iii) Multiply each allocation base by its corresponding cost of money factor to get the facilities capital cost of money estimated to be incurred each year. The sum of these products represents the estimated contract facilities capital cost of money for the year's effort.
(iv) Total contract facilities cost of money is the sum of the yearly amounts.
(v) Since the facilities capital cost of money factors reflect the applicable cost of money rate in Column 1 of Form CASB-CMF, divide the contract cost of money by that same rate to determine the contract facilities capital employed.
(d) Preaward facilities capital applications. To establish cost and price objectives, apply the facilities capital cost of money and capital employed as follows:
(1) Cost of Money.
(i) Cost Objective. Use the imputed facilities capital cost of money, with normal, booked costs, to establish a cost objective or the target cost when structuring an incentive type contract. Do not adjust target costs established at the outset even though actual cost of money rates become available during the period of contract performance.
(ii) Profit Objective. When measuring the contractor's effort for the purpose of establishing a prenegotiation profit objective, restrict the cost base to normal, booked costs. Do not include cost of money as part of the cost base.
(2) Facilities Capital Employed. Assess and weight the profit objective for risk associated with facilities capital employed in accordance with the profit guidelines at 215.404-71-4.
(e) Determination. The following extract from the DD Form 1547 has been annotated to explain the process.
Item |
Contractor Facilities Capital Employed |
Assigned Value |
Amount Employed |
Profit Objective |
26. |
Land |
N/A |
(2) |
N/A |
27. |
Buildings |
N/A |
(2) |
N/A |
28. |
Equipment |
(1) |
(2) |
(3) |
(1) Select a value from the list in paragraph (f) of this subsection using the evaluation criteria in paragraph (g) of this subsection.
(2) Use the allocated facilities capital attributable to land, buildings, and equipment, as derived in DD Form 1861, Contract Facilities Capital Cost of Money.
(i) In addition to the net book value of facilities capital employed, consider facilities capital that is part of a formal investment plan if the contractor submits reasonable evidence that—
(A) Achievable benefits to DoD will result from the investment; and
(B) The benefits of the investment are included in the forward pricing structure.
(ii) If the value of intracompany transfers has been included in Block 20 at cost (i.e., excluding general and administrative (G&A) expenses and profit), add to the contractor's allocated facilities capital, the allocated facilities capital attributable to the buildings and equipment of those corporate divisions supplying the intracompany transfers. Do not make this addition if the value of intracompany transfers has been included in Block 20 at price (i.e., including G&A expenses and profit).
(3) Multiply (1) by (2).
(f) Values: Normal and designated ranges.
Asset Type |
Normal Value |
Designated Range |
Land |
0% |
N/A |
Buildings |
0% |
N/A |
Equipment |
17.5% |
10% to 25% |
(g) Evaluation criteria.
(1) In evaluating facilities capital employed, the contracting officer—
(i) Should relate the usefulness of the facilities capital to the goods or services being acquired under the prospective contract;
(ii) Should analyze the productivity improvements and other anticipated industrial base enhancing benefits resulting from the facilities capital investment, including—
(A) The economic value of the facilities capital, such as physical age, undepreciated value, idleness, and expected contribution to future defense needs; and
(B) The contractor's level of investment in defense related facilities as compared with the portion of the contractor's total business that is derived from DoD; and
(iii) Should consider any contractual provisions that reduce the contractor's risk of investment recovery, such as termination protection clauses and capital investment indemnification.
(2) Above normal conditions.
(i) The contracting officer may assign a higher than normal value if the facilities capital investment has direct, identifiable, and exceptional benefits. Indicators are—
(A) New investments in state-of-the-art technology that reduce acquisition cost or yield other tangible benefits such as improved product quality or accelerated deliveries; or
(B) Investments in new equipment for research and development applications.
(ii) The contracting officer may assign a value significantly above normal when there are direct and measurable benefits in efficiency and significantly reduced acquisition costs on the effort being priced. Maximum values apply only to those cases where the benefits of the facilities capital investment are substantially above normal.
(3) Below normal conditions.
(i) The contracting officer may assign a lower than normal value if the facilities capital investment has little benefit to DoD. Indicators are—
(A) Allocations of capital apply predominantly to commercial item lines;
(B) Investments are for such things as furniture and fixtures, home or group level administrative offices, corporate aircraft and hangars, gymnasiums; or
(C) Facilities are old or extensively idle.
(ii) The contracting officer may assign a value significantly below normal when a significant portion of defense manufacturing is done in an environment characterized by outdated, inefficient, and labor-intensive capital equipment.
215.407-5 Estimating systems.
215.407-5-70 Disclosure, maintenance, and review requirements.
(a) Definitions.
(1) “Acceptable estimating system” is defined in the clause at 252.215-7002, Cost Estimating System Requirements.
(2) “Contractor” means a business unit as defined in FAR 2.101.
(3) “Estimating system” is as defined in the clause at 252.215-7002, Cost Estimating System Requirements.
(4) “Significant estimating system deficiency” means a shortcoming in the estimating system that is likely to consistently result in proposal estimates for total cost or a major cost element(s) that do not provide an acceptable basis for negotiation of fair and reasonable prices.
(b) Applicability.
(1) DoD policy is that all contractors have acceptable estimating systems that consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices.
(2) A large business contractor is subject to estimating system disclosure, maintenance, and review requirements if—
(i) 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
(ii) 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 ACO, 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).
(c) Responsibilities.
(1) The contracting officer shall—
(i) Through use of the clause at 252.215-7002, Cost Estimating System Requirements, apply the disclosure, maintenance, and review requirements to large business contractors meeting the criteria in paragraph (b)(2)(i) of this subsection;
(ii) Consider whether to apply the disclosure, maintenance, and review requirements to large business contractors under paragraph (b)(2)(ii) of this subsection; and
(iii) Not apply the disclosure, maintenance, and review requirements to other than large business contractors.
(2) The cognizant ACO, for contractors subject to paragraph (b)(2) of this subsection, shall—
(i) Determine the acceptability of the disclosure and system; and
(ii) Pursue correction of any deficiencies.
(3) The cognizant auditor, on behalf of the ACO, serves as team leader in conducting estimating system reviews.
(4) A contractor subject to estimating system disclosure, maintenance, and review requirements shall—
(i) Maintain an acceptable system;
(ii) Describe its system to the ACO;
(iii) Provide timely notice of changes in the system; and
(iv) Correct system deficiencies identified by the ACO.
(d) Characteristics of an acceptable estimating system.
(1) General. An acceptable system should provide for the use of appropriate source data, utilize sound estimating techniques and good judgment, maintain a consistent approach, and adhere to established policies and procedures.
(2) Evaluation. In evaluating the acceptability of a contractor's estimating system, the ACO should consider whether the contractor's estimating system, for example—
(i) Establishes clear responsibility for preparation, review, and approval of cost estimates;
(ii) Provides a written description of the organization and duties of the personnel responsible for preparing, reviewing, and approving cost estimates;
(iii) Assures that relevant personnel have sufficient training, experience, and guidance to perform estimating tasks in accordance with the contractor's established procedures;
(iv) Identifies the sources of data and the estimating methods and rationale used in developing cost estimates;
(v) Provides for appropriate supervision throughout the estimating process;
(vi) Provides for consistent application of estimating techniques;
(vii) Provides for detection and timely correction of errors;
(viii) Protects against cost duplication and omissions;
(ix) Provides for the use of historical experience, including historical vendor pricing information, where appropriate;
(x) Requires use of appropriate analytical methods;
(xi) Integrates information available from other management systems, where appropriate;
(xii) Requires management review including verification that the company's estimating policies, procedures, and practices comply with this regulation;
(xiii) 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;
(xiv) Provides procedures to update cost estimates in a timely manner throughout the negotiation process; and
(xv) Addresses responsibility for review and analysis of the reasonableness of subcontract prices.
(3) Indicators of potentially significant estimating deficiencies. The following examples indicate conditions that may produce or lead to significant estimating deficiencies—
(i) Failure to ensure that historical experience is available to and utilized by cost estimators, where appropriate;
(ii) Continuing failure to analyze material costs or failure to perform subcontractor cost reviews as required;
(iii) Consistent absence of analytical support for significant proposed cost amounts;
(iv) Excessive reliance on individual personal judgment where historical experience or commonly utilized standards are available;
(v) Recurring significant defective pricing findings within the same cost element(s);
(vi) 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; and
(vii) Failure to provide established policies, procedures, and practices to persons responsible for preparing and supporting estimates.
(e) Review procedures. Follow the procedures at PGI 215.407-5-70(e) (Pop-up Window or PGI Viewer Mode) for establishing and conducting estimating system reviews.
(f) Disposition of survey team findings. Follow the procedures at PGI 215.407-5-70(f) (Pop-up Window or PGI Viewer Mode) for disposition of the survey team findings.
(g) Impact of estimating system deficiencies on specific proposals.
(1) Field pricing teams will discuss identified estimating system deficiencies and their impact in all reports on contractor proposals until the deficiencies are resolved.
(2) The contracting officer responsible for negotiation of a proposal generated by an estimating system with an identified deficiency shall evaluate whether the deficiency impacts the negotiations. If it does not, the contracting officer should proceed with negotiations. If it does, the contracting officer should consider other alternatives, e.g.—
(i) Allowing the contractor additional time to correct the estimating system deficiency and submit a corrected proposal;
(ii) Considering another type of contract, e.g., FPIF instead of FFP;
(iii) Using additional cost analysis techniques to determine the reasonableness of the cost elements affected by the system's deficiency;
(iv) Segregating the questionable areas as a cost reimbursable line item;
(v) Reducing the negotiation objective for profit or fee; or
(vi) Including a contract (reopener) clause that provides for adjustment of the contract amount after award.
(3) The contracting officer who incorporates a reopener clause into the contract is responsible for negotiating price adjustments required by the clause. Any reopener clause necessitated by an estimating deficiency should—
(i) Clearly identify the amounts and items that are in question at the time of negotiation;
(ii) Indicate a specific time or subsequent event by which the contractor will submit a supplemental proposal, including cost or pricing data, identifying the cost impact adjustment necessitated by the deficient estimating system;
(iii) Provide for the contracting officer to unilaterally adjust the contract price if the contractor fails to submit the supplemental proposal; and
(iv) Provide that failure of the Government and the contractor to agree to the price adjustment shall be a dispute under the Disputes clause.
252.215-7002 Cost Estimating System Requirements.
As prescribed in 215.408(2), use the following clause:
COST ESTIMATING SYSTEM REQUIREMENTS (DEC 2006)
(a) Definitions.
“Acceptable estimating system” means an estimating system that—
(1) Is maintained, reliable, and consistently applied;
(2) Produces verifiable, supportable, and documented cost estimates that are an acceptable basis for negotiation of fair and reasonable prices;
(3) Is consistent with and integrated with the Contractor’s related management systems; and
(4) Is subject to applicable financial control systems.
“Estimating system” means the Contractor's policies, procedures, and practices for generating estimates of costs and other data included in proposals submitted to customers in the expectation of receiving contract awards. Estimating system includes the Contractor's—
(1) Organizational structure;
(2) Established lines of authority, duties, and responsibilities;
(3) Internal controls and managerial reviews;
(4) Flow of work, coordination, and communication; and
(5) Estimating methods, techniques, accumulation of historical costs, and other analyses used to generate cost estimates.
(b) General. The Contractor shall establish, maintain, and comply with an acceptable estimating system.
(c) Applicability. Paragraphs (d) and (e) of this clause apply if the Contractor is a large business and either—
(1) In its fiscal year preceding award of this contract, received Department of Defense (DoD) prime contracts or subcontracts, totaling $50 million or more for which cost or pricing data were required; or
(2) In its fiscal year preceding award of this contract—
(i) 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
(ii) Was notified in writing by the Contracting Officer that paragraphs (d) and (e) of this clause apply.
(d) System requirements.
(1) The Contractor shall disclose its estimating system to the Administrative Contracting Officer (ACO) in writing. If the Contractor wishes the Government to protect the information as privileged or confidential, the Contractor must mark the documents with the appropriate legends before submission.
(2) An estimating system disclosure is acceptable when the Contractor has provided the ACO with documentation that—
(i) Accurately describes those policies, procedures, and practices that the Contractor currently uses in preparing cost proposals; and
(ii) Provides sufficient detail for the Government to reasonably make an informed judgment regarding the acceptability of the Contractor's estimating practices.
(3) The Contractor shall—
(i) Comply with its disclosed estimating system; and
(ii) Disclose significant changes to the cost estimating system to the ACO on a timely basis.
(e) Estimating system deficiencies.
(1) The Contractor shall respond to a written report from the Government that identifies deficiencies in the Contractor's estimating system as follows:
(i) If the Contractor agrees with the report findings and recommendations, the Contractor shall—
(A) Within 30 days, state its agreement in writing; and
(B) Within 60 days, correct the deficiencies or submit a corrective action plan showing proposed milestones and actions leading to elimination of the deficiencies.
(ii) If the Contractor disagrees with the report, the Contractor shall, within 30 days, state its rationale for disagreeing.
(2) The ACO will evaluate the Contractor's response and notify the Contractor of the determination concerning remaining deficiencies and/or the adequacy of any proposed or completed corrective action.
(End of clause)
| File Type | application/msword |
| Author | pltoppings |
| Last Modified By | pltoppings |
| File Modified | 2010-11-30 |
| File Created | 2010-11-30 |