Proposal Cost and Pricing Data: Top Four Risk Issues Facing Government Contractors

Government contractors who are required to submit certified cost and pricing data as part of a bid proposal face increasingly greater risks of government rejection or award disqualification during pre-award review or even worse, defective pricing allegations after award causing government mandated downward negotiated price adjustments. In today’s government procurement environment where procurement commands and their auditors hold contractors to solicitation and cost analysis provisions with such rigidity, equating to a zero error tolerance during proposal evaluations, contractors must not fail to meet the “certified cost or pricing data” submission or disclosure expectations in the pre-award proposal preparation process as intended within the Truth-in-Negotiations Act (TINA).

Contractor lapses in following the rules of FAR 15.408, Table 15-2, in proposal presentation, or missteps in submission of all relevant cost or pricing data before price agreement, even though immaterial in impact to proposed costs are sometimes perceived as severe systemic estimating problems, or intentional withholding of cost/pricing data, either scenario of which can create roadblocks to contractors wishing to bid on future work.

Our experience in working with clients who have faced government cost proposal challenges reveal four specific areas of risk for contractors to dodge during proposal preparation and follow-up disclosures to the government, when “cost or pricing data is required”.

“Cost or Pricing Data”, and How Such Data was Used in Developing Proposal, is not Identified

FAR 15.408, Table 15-2 makes it clear that contractors disclose such data and describe how individual factual cost/pricing sources were used to calculate proposed costs by cost element. Contractors must understand the definition of “cost or pricing data” as contemplated in the TINA, apply that definition to the type of cost/pricing data used for estimating its unique products and services, and be clear (especially during audit) in the conversion of that pricing data to cost estimates. This requirement is amplified in DCAA’s internal proposal adequacy checklist, as well as the new DOD proposal checklist which contractors are now required to prepare and submit with any proposal requiring cost or pricing data under DFARS 252.215-7009.

Data Used as Basis for Pricing is Obviously Outdated

Submission and use of non-current cost or pricing data for proposing direct labor hours or rates, and materials quantities or unit prices, for a new bid will elevate the likelihood of defective pricing and raise the contracting officer’s suspicion that a contractor may be gaming the system (e.g., inflating the estimate); when more current cost/pricing data is available, relevant to the supplies or services to be provided, and that data is replaced by older information in the bid estimate process, better have a good explanation. Older purchase history information, for example, may produce a more “accurate” estimate if, for example, the prices for those earlier quantities purchased are more in line given symmetrical quantities of materials required for the new bid. However, when later data is available, and no clear rationale for not using the more current data is evident, better explain (and disclose) in the new bid estimate.

Excessive Use of Judgment Rather Than Available Factual Data

Try submitting a cost proposal with over 50% of proposed costs based on engineering estimates, current industry standards (no source for such standards provided), and other non-descriptive bases for those costs. Government procurement officials may potentially view estimates based on excessive judgment as non-responsive, or symptomatic of the “lazy estimating” syndrome, especially where pricing data could have readily been produced for the services or supplies required. Judgment may be the only alternative, however, for new R&D or early production prototype development, where existing contractor pricing resources are not valid. Nonetheless, significant costs based on nothing but judgment increases risk of rejected proposals, questioned costs, and defective pricing.

Non-Disclosure of or Failure to Use History for Same or Like Services or Supplies Being Bid

Even though cost estimators may deem historical direct labor or materials costs for same or similar items not entirely relevant or accurate as a baseline for projecting future bid requirements (e.g. significant configuration changes), the government will nonetheless view any type of direct incurred costs for services or supplies even remotely similar to new bid requirements as worthy of disclosure, and will nonetheless request that data during the pre-award analysis.Contractors sometimes discard the use of historical information in these circumstances, and substitute engineering or program management judgment as a basis for projections, which may ultimately result in a more accurate estimate given significant changes between services/services historically provided and those requiring a current bid estimate. Best practice, however, is to disclose that history, include it as part of your bid submission, and explain why that data was not used as pricing data.

A reiteration of consequences in failing to adhere to TINA/cost or pricing data requirements—disqualification of proposals, significant audit questioned or unsupported costs (adverse opinion that proposal is not suitable for negotiations), disapproved estimating system, and more splendid hours with auditors while they audit historical awards for evidence of defective pricing.