Importance of Basis of Estimate
The proposal is often the procurement parties’ first introduction to a company. It is important to remember that different readers are looking for different types of content from the proposal. From an auditor’s viewpoint, an important part of a contractor’s cost estimating process is preparing the basis of estimate (BOE). All too often the pricing process is done in reverse order, the engineers start calculating and the purchasing department starts looking for prices without a BOE. The basis of estimate development should be done early in the process to outline the company’s expected staffing approach and material needs based on the Performance Work Statement (PWS). This outline allows the company to put together a cohesive description of its approach to the work.
The Beginning of Creating a Basis of Estimate
The first step in putting together the BOE, as well as the proposal, is to carefully read the Performance Work Statement (PWS). The proposal team should include members of your company’s financial, pricing, purchasing and technical personnel to provide a realistic estimate. The team must, collectively, determine the right approach in several areas such as:
- Does the company have the expertise in all areas required by the PWS or is a teaming partner desirable?
- What major tasks need to be subcontracted?
- Does the company have experience they can leverage?
- Does the company have adequate bandwidth to perform the PWS
- enough people
- enough space to perform any manufacturing/assembly required
- all necessary equipment
- adequate financial resources
- Are there known shortages of specific materials? If so, how will they be solved.
- Is any government furnished equipment or materials required?
Once these questions have been answered, the BOE should reflect the outcome of these discussions, to include, the level of services (proposed labor hours) needed, the skill mix required (proposed labor categories), materials required, travel needed, etc., that will be responsive to the PWS. The BOE is generally broken down by cost element such as labor, materials, travel and indirect expenses. For each cost element, the BOE should combine detailed computations with supporting rationale. Computations, alone, are not sufficient. Specific areas to be addressed include:
- If there are labor categories that require a mix of skill levels, be sure these skill levels are clearly identified and justified. Explain why a Senior Information Analyst is needed instead of an Intermediate Information Analyst.
- If the proposal is a follow-on manufacturing job and there has been major price increases in specific materials, explain why alternative materials are not appropriate.
- Explanation of the need for travel and determine if teleconferences replace the need for some travel.
- Explain the impact of this proposal on indirect rates.
- Any assumptions made.
Common Elements of the Basis for Estimate
All cost elements proposed should disclose the following as part of the BOE:
- Thought process and approach (the logic behind choices made)
- Company Experience (comparison to historical data or programs)
- Time Span/Period of Performance
- Quantity estimates
- Engineering Judgement
- Mathematical Calculations
- Complexity Factors and Basis for Factors (e.g. efficiency or scrap/rework)
Organization of the Basis for Estimate
The BOE may be required to be included in you proposal’s Technical Volume or the Cost Volume, or both. This requirement should be specified in the solicitation and full compliance with the solicitation requirement is imperative. It is also important to have a well-organized BOE and to follow any presentation requirements laid out in the solicitation. If the BOE cannot be easily followed by the proposal auditor (For example, the numbers don’t readily tie together), the auditor has an incentive to find any “hidden” errors, although the errors may be inadvertent. The more difficult the BOE is to follow, the more time your staff will have to spend with the auditors, which is a waste of your company’s time and resources. Additionally, the auditors evaluating your proposal and BOE probably have a budget and are under immense pressured to meet that budget. If the BOE is too difficult for the auditor to understand, they may question anything that is difficult to interpret and confusing, again wasting resources and delaying contract award..
It is useful to incorporate a reference table into your narrative that shows all of the elements required in the development of your BOE (labor categories, hours, etc.). This table should be referenced to the supporting details for each cost element of your BOE. If you are referencing Excel spreadsheets, ensure you have identified and referenced the tab and possibly even the specific cell of the applicable spreadsheet. Referring to a spreadsheet without this detail wastes auditor time looking for the numbers. This table should total the amount the company is proposing to fulfill the PWS. If there are rounding differences, be sure to identify them.
For a government contractor, providing the government a well-documented BOE makes life easier for everyone. If you are not sure your BOE meets the auditor expectations, Redstone GCI can help. Redstone GCI assists contractors throughout the U.S. and internationally with proposal preparation, from help with the BOE development and pricing to just a read of the final BOE to ensure it is well organized and covers all of the required information.