What steps in the proposal process are most affected by a contractor’s use of parametric estimating techniques as a basis of estimate (BOE)? Actually, the process as such does not change dramatically when a contractor uses parametric estimating techniques. The most important step is the contractor’s initial decision to develop the proposal parametrically, which then leads to the establishment of an implementation team, the definition of its charter, and the determination of the buying office’s role in it, all of which affect how the proposal will be evaluated and negotiated. Throughout the process, the contractor should maintain regular communications with the buying office and knowledgeable representatives from
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the DCMA and the DCAA, in order to ensure that the proposed estimating methodology, and the presentation of its results in the proposal, meets the customer’s needs.
Contractor’s Decision to Use Parametric Estimating Techniques
The first step in the parametric proposal evaluation process is the contractor’s decision to use parametric techniques as the BOE. A major factor in this decision is the contractor’s determination that it is feasible to develop a parametric
estimating system capable of producing reliable estimates in a consistent manner. In order to develop this capability, contractors should have, or establish, a formal data collection program. The Parametric Estimating Reinvention Laboratory demonstrated that it is very important for a contractor to have an adequate,
relevant database since this forms the foundation from which to predict the cost of a future project or item.
A contractor should have enough expected future business to justify the cost and effort required to implement a valid parametric estimating capability. In addition to using a parametric technique as a proposal-bidding tool, a company should consider any derivative benefits it may have, such as its application to risk analysis and target costing. Chapter 8, Other Parametric Applications, discusses these uses.
Establishing an Implementation Team
Process change or improvement is not possible without the support of the process owners and the customers of the process outputs. The Parametric Estimating Reinvention Laboratory demonstrated that the use of a joint implementation team to implement and employ parametric estimating techniques is a best practice. The team’s composition generally consists of representatives from various functional departments of the contractor, buying office, DCMA, and DCAA. For example, many Parametric Estimating Reinvention Laboratory sites chartered their
implementation team as a formal IPT. Regardless of whether the team is an IPT or an ad-hoc committee, it should meet and establish its objectives early in the evaluation process, before significant resources are expended. Early organization and regular meetings ensure a clear focus for the company, and the opportunity for the primary Government customers to express concerns and expectations. The company and its customers may form the team in different ways. One approach is to form an executive-level group made up of senior management personnel from the contractor, customer (including program management personnel), DCMA, and DCAA. This group, often referred to as a management council, provides overall policy direction, resources, training authorization, and high-level organizational support. The executive-level group selects staff personnel to form a working-level implementation team. Another method involves the establishment of a formal IPT which develops the parametric estimating system, sets up joint training for all team members, recommends estimating system policy changes, and develops and evaluates the proposals.
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The most important feature of the team is not how it is formed, but that its members are dedicated, open-minded, and interested in committing the time and energy to investigate the opportunity of developing a parametric estimating capability. This increases the likelihood that the customer will accept a
parametrically based proposal as a valid basis for negotiating a fair and reasonable price.
Responsibilities of the Implementation Team
Once established, the implementation team must accomplish a number of tasks, including:
• Obtain approval from the contractor and Government management to establish the required resources. Prior to a full commitment of resources, contractors typically perform a return on investment (ROI) analysis to illustrate the costs and benefits of implementing a new estimating technique. If the analysis justifies further pursuit, the company seeks internal management commitment.
• Develop or obtain training for team members (and others as needed). Training can include an overview of parametric estimating techniques, as well as detailed training on the specific CER or model being implemented. • Develop a methodology for calibrating and validating the parametric
model. This requires either developing expertise or obtaining it from other sources.
• Establish rules for joint proposal development and proposal negotiation. • Establish approved parametric estimating policy and procedures.
• Address regulatory issues, such as TINA, FAR, and CAS.
• Resolve as many differences as possible between the Government and contractor. However, some issues may remain that must be settled by negotiation.
Establishing an Approved Parametric Estimating System
Prior to using parametric techniques on proposals, contractors should establish effective estimating system policies and procedures that comply with Government procurement regulations. Chapter 7, Government Compliance, discusses criteria for establishing adequate policies and procedures.
Proposal Evaluation
Based on FAR 15.402(a), contracting officers are responsible for determining and negotiating reasonable prices, with input and assistance from DCMA, DCAA, and others. The contractor's task is to provide information and supporting data for this determination. When a parametrically-based proposal is received, the contracting officer should determine if it is suitable as a basis for negotiation. The contracting
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office may not have the necessary knowledge to make this determination due to limited training or knowledge of parametric estimating. If this is the case, then the contracting officer’s response should not be to declare the proposal
unsatisfactory, but instead to find the personnel or information needed to make an appropriate determination. For example, DCAA provides financial advisory services to contracting officers concerning such issues as the adequacy of proposal submissions based on parametric techniques, and the validity of a contractor’s parametric estimating system.
Contractors can use parametric techniques to generate cost breakdowns in varying formats. The solicitation clause at FAR 52.215-20, “Requirements for Cost or Pricing Data or Information Other than Cost or Pricing Data,” permits contracting officers to tailor proposal formats as needed. A contractor’s proposal submission should provide details on the parametric technique used, model inputs, database, and statistical information sufficient to provide a basis for evaluating the
technique’s merits. Again, contractors can facilitate this process by ensuring that the customer, DCMA, and DCAA are part of the implementation team. Chapter 7, Government Compliance, discusses alternative proposal formats.
The offeror must support its proposal, which includes educating the customer on its practices and procedures. However, the customer also has a responsibility to maintain its knowledge of the techniques and technologies being used within Industry. If the proposal is large enough, an on-site fact-finding session may be needed to fill any gaps in the proposal supporting data. If data are not sufficient to support an evaluation, the contracting officer may return the proposal to the offeror. After a valid proposal is received, the contracting officer will typically assemble a negotiation team. This could consist of an appropriate mix of functions, such as price analysts, auditors, financial and technical advisors, and other parametric experts.
The negotiation team performs a number of tasks related to proposal parametrics including:
• Evaluating the calibration and validation of parametric tools;
• Assessing the accuracy of parametric inputs and their appropriateness as cost drivers;
• Checking the validity of the parametric database as a BOE;
• Evaluating the quality, accuracy, and relevancy of the data in the database; • Examining the nature and reliability of the contractor’s parametric
estimating system
Negotiating a Parametrically-Based Proposal
If the procurement is sole-source, then the proposal is subject to negotiation regardless of the estimating method employed. Indeed, any acquisition situation, other than sealed bidding, contains some elements of negotiation. Neither
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the one and only price. Regardless of the estimating method used, the goal is to produce an overall estimate that is fair and reasonable for the supplies and
services being acquired. If the implementation team has done its work well, there should be no issues of fact regarding the use of a parametric estimating technique. The only questions should concern decisions about its use and application. For example, a properly calibrated and validated model should generally be
acceptable to the contracting officer as a BOE if properly documented. However, the model inputs (e.g., weight, size, complexity) would be subject to validation by advisors to the contracting officer, and to negotiation. Other aspects of the
proposed price such as profit, economic escalation, adjustments for future changes, and decrement factors for proposed purchased items are subject to negotiation as well.
The Procuring Contracting Officer (PCO) should conduct negotiations or specifically delegate pieces of the negotiation to the Administrative Contracting Officer (ACO). A parametric model should never be presented as a "black box" that produces the one and only price the buying office must accept without review and evaluation. In the end, the point of any negotiation is to settle on a reasonable price, not to come to agreement on a model, data input, or cost element.
The ACO/PCO should assemble a team including price analysts, DCMA, and DCAA to evaluate the proposal and support negotiations, and Figure J.1 provides a suggested list of actions the team should take when addressing a parametrically based proposal.
1. Evaluate procedures and results of calibrating and validating the model or CERs used to build the proposal.
2. Verify data collected and used in the model.
3. Determine if the model produces estimates that are logical, consistent with history, and are properly supported.
4. Obtain inputs on costs not estimated by the model. 5. Compile all inputs and develop a negotiation position.
Figure J.1 Areas to be addressed by the Contracting Officer's IPT
Chapter 7, Government Compliance, provide additional information on Government evaluation procedures.