9-301 Introduction
a. This section presents general guidance on evaluation of contractors' estimates including preliminary survey procedures and overall audit policies. Guidance related to specific cost areas is included in the remaining sections of this chapter (e.g., material cost is in Section 4 and labor cost is in Section 5).
b. This section is also intended to provide a general framework for the discussion on per
forming contractor estimating system compliance audits included in 5-1200.
9-302 Adequacy of Cost Accounting System for Preparation of Price Proposals a. When the contract price is to be negotiated based on certified cost or pricing data, the contractor is required to certify that the data in support of the proposal are accurate, complete, and current (see 9-202b and FAR 15.403-4). The contractor's cost accounting system usually is a major data source used in preparing the proposal. In evaluating cost accounting system adequacy, the results of prior audits of materials, labor, indirect costs, budgeting function, etc., should assist in determining whether valid, reliable, and current costs are readily available (see 5-1207.3). When applicable, the contractor is also required to file a CAS Board Disclosure Statement certifying that the practices are complete and accurate as of the day of submission. The contractor is also certifying that the practices used in estimating costs in the proposal are consistent with the cost accounting practices disclosed in the statement. In evaluating the cost accounting system, determine that the actual estimating practices comply with CAS and the disclosure statement (see Chapter 8).
b. To provide data required for cost estimating purposes, the contractor's cost account
ing system must contain sufficient refinements to provide, where applicable, cost segrega
tion for
(1) preproduction work and special tooling;
(2) prototypes, static test models, or mock-ups;
(3) production by individual production centers, departments, or operations---as well as by components, lots, batches, runs or time periods;
(4) engineering by major task;
(5) each contract item to be separately priced;
(6) scrap, rework, spoilage, excess material, and obsolete items resulting from en
gineering changes;
(7) packaging and crating when substantial; and
(8) other nonrecurring or other direct cost items requiring separate treatment. (See also 5-1207.3 and 5-1209.)
c. Accounting data used in developing estimated costs must be valid and reliable. For example, in an accounting system which provides for lot costing, inadequate controls over job lot cutoffs may result in inaccurate lot cost data. This type of error could produce in
equitable results when lot cost trends are used in developing or evaluating costs for fol
low-on procurement. For this reason, an audit of internal controls is important.
9-303 Contractor Estimating Methods and Procedures-Cost Estimates
a. A contractor's estimating method is influenced by the type of accounting system maintained and the statistical data available. Data supporting individual cost estimates may include:
(1) directly applicable experience for an entire product, such as a follow-on pro
curement for a product already in production;
(2) directly applicable experience for certain tasks comprising a new procurement similar to those accomplished under previous contracts; and
(3) general or indirectly applicable experience represented by various ratios and percentage factors applicable to a common base.
When experience ratios or percentage factors are used by contractors to derive related estimates for a current estimate, determine whether adjustments were made to reflect differences in complexity, production rate, contract performance period, and other fac
tors which influence the validity of the current estimate.
b. Contractors may employ uniform procedures to prepare prospective price proposals or may justifiably use a variety of methods and procedures. Special problems may require a deviation from established procedures. It may be desirable in certain instances, from both the cost and time standpoints, to use overall or broad estimating procedures, rather than more precise, detailed methods; or it may be necessary to rely on the judgment of qualified personnel in design, production, and other fields. Variations in estimating proce
dures employed may be attributable to such factors as:
(1) the relative dollar amount of each estimate, (2) the contractor's competitive position,
(3) the degree of firmness of specifications related to a new item, and
(4) the available cost data applicable to the same or related products/services previ
ously furnished.
c. Regardless of whether the contractor has based an estimate directly on past incurred costs, ensure that cost estimates for future work are based on correction of any past or current inefficient or uneconomical contractor practices. For example, if the proposed engineering or manufacturing productivity is less than that reasonably achievable by the contractor in performing the proposed contract, the cost difference between the proposed productivity and the more likely achievable productivity should be questioned in the audit.
Also question the impact of any cost avoidance recommendations using the criteria in 9
308. (See also 5-1209.)
d. There are various methods of preparing cost estimates. The most frequently used are the detailed, comparison, and roundtable methods or a combination of the three.
(1) The detailed method requires the accumulation of detailed information to arrive at estimated costs and typically uses cost data derived from the accounting system, adjunct statistical records, and other sources. The information often includes specifications; draw
ings; bills of material; statements of production quantities and rates; machine and work
station workloads; manufacturing processes, including the analysis of labor efficiency, setup and rework, and material scrap, waste, and spoilage; data determining plant layout requirements; analysis of tooling and capital equipment, labor, raw material and purchased parts; special tools and dies; and composition of the indirect cost pools.
(2) The comparison method is used when specifications for the item being estimat
ed are similar to other items already produced or currently in production and for which
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9-304 actual cost experience is available. Under this method, requirements for the new item are compared with those for a past or current item, the differences are isolated, and cost ele
ments applicable to the differences are deleted from or added to experienced costs. Ad
justments are also made for possible upward or downward cost trends.
(3) The roundtable method is used to estimate the cost of a new item when there is no cost experience or detailed information regarding specifications, drawings, or bills of material. Under this method, representatives of the engineering, manufacturing, purchas
ing, and accounting departments (among others) develop the cost estimates by exchanging views and making judgments based on knowledge and experience. This method has the advantage of speed of application and is relatively inexpensive, but may not produce readily supportable or reliable cost estimates. When this method is used, technical assis
tance may be required to evaluate the resultant cost estimates.
9-304 Price Proposals Format and Support
a. Contractor price proposals required by FAR 15.403 /DFARS 215.403-1 to be sub
mitted with certified cost or pricing data must also be submitted with the first page of the proposal including the details specified by FAR 15.408, Table 15-2, if Table 15-2 is being used. Departments which contribute data to the proposal may include, among others, ac
counting, cost control, budgeting, estimating, planning, purchasing, production control, engineering, drafting, publications, and sales. In addition to the cost data contained in the accounting system, adjunct statistical records and data may be maintained and used in preparing cost estimates. The data may include bills of material, vendor quotations and catalogs, blueprints, value analysis reports, labor efficiency reports, sales budgets, and indirect cost budgets. Contractors may also prepare time series charts, scatter charts, learn
ing curves, and other forms of graphic analysis in developing cost estimates.
b. To expedite the audit process, the Agency has developed criteria which can be used to evaluate the adequacy of the basic supporting data and information submitted with the proposal. This form is available on the DCAA Intranet and the APPS (file name ADEQUACY).
c. When coordinating with the responsible Government procurement and technical representatives, solicit the contractor's cooperation in reaching an informal agreement on types of data and information to be submitted with a proposal or to be made available at the beginning of the audit.
d. If not already provided electronically, request the contractor to submit its proposal and supporting data in electronic media (e.g., CD-ROM, on-line access). The data should be in an acceptable format for processing on DCAA computers.
9-305 Coordination with Contracting Officers
a. The organizational relationship of auditors with contracting officers and their repre
sentatives is discussed in 1-400. A close working relationship is essential for complete and meaningful evaluations of contractors' cost estimates.
b. Contracting officers, through proper coordination and utilization of members of the procurement team (including engineers, lawyers, price analysts, and contract auditors), must ensure that contractors' price proposals have been prepared on a sound basis and are evaluated in sufficient depth to support an informed opinion regarding reasonableness.
The contracting officer is responsible for requiring the timely submission of needed data.
Each member of the team is responsible for making recommendations in his or her respec
tive area.
c. The auditor will perform financial evaluations and analyses requiring access to the contractor's records. These analyses will cover both the adequacy of statements of current costs and the adequacy and reasonableness of projections to the extent information rele
vant to such projections can be obtained from the contractor's records. These evaluations, for example, might cover material prices and quantities; labor hours and rates; and the elements of the various indirect cost pools and their distribution. As used in this para
graph, "records" include, among other things, historical cost records, cost ledgers, pur
chase orders, subcontractor and vendor quotations, budgets, forecasts, learning curve computations, and similar cost and forecasting data.
d. Administrative procedures to coordinate:
(1) a PCO request for audit or technical review of a prime contractor price proposal or
(2) an ACO, PCO, or auditor request for audit or technical review of a lower-tier contractor price proposal are described in 9-103, 9-104, 9-108, and Appendix D.
e. The manner in which information furnished by the auditor is used in negotiation is the responsibility of the contracting officer. Where the contracting officer fails to accept an audit recommendation and the auditor believes that this action has a significant or con
tinuing impact on the reasonableness of the price or on administration of the contract, and in addition, feels that there is an opportunity for useful corrective action, the auditor should report the situation to his or her supervisor (see 4-803 and 15-600).
f. The type of contract to be awarded and the contract provisions are the responsibility of the contracting officer. When an evaluation of the contractor's operation indicates that the contemplated contract type would not be in the Government's best interest because of the contractor's type of business, accounting system, production of similar items for com
mercial purposes, or other reasons, recommend that the contracting officer consider a dif
ferent type of contract. Also advise the contracting officer when proposed contract provi
sions appear inappropriate or undesirable (see 3-300).
9-306 Use of Specialist Assistance in Price Proposal Technical Evaluations
a. An important aspect of a proposal evaluation is determining the reasonableness of material and labor estimates. Audit tests of these estimates may require the assistance of technical specialists.
b. Specialist assistance is usually obtained when the contractor's support for the cost being audited is not based on accounting or financial data and the auditor cannot effi
ciently or effectively determine the reasonableness of the costs through alternative means. However, the decision to use specialists should be reached only after consider
ing the type of risk factors described in 9-402.2 and 9-501. These risk factors and others may indicate that specialist assistance is not necessary.
c. Detailed procedural guidance is presented in Appendix D to assist in:
(1) deciding whether technical specialist assistance is needed, (2) identifying what type of assistance is needed,
(3) requesting the assistance,
(4) achieving good communications with technical specialists, and
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