What is the suggested composition of IPTs which are implementing new parametric techniques?
IPTs should include representatives from a contractor’s organization, the contractor’s major buying activities, DCAA, and DCMA. The contractor is responsible for identifying and demonstrating the new parametric estimating opportunities, including how these will improve the estimating process (e.g., cost- benefit analysis). The contractor should also update estimating policies and procedures to incorporate new parametric tools and techniques (see Chapter 7, Government Compliance). The buying activity, DCAA, and DCMA team
members provide real-time feedback to the contractor on such issues as estimating policies and procedures, calibration and validation criteria, and Government evaluation criteria. Chapter 8, Other Parametric Applications, has additional guidance on IPTs.
The Reinvention Laboratory recommends, as a best practice, that IPTs receive training in a newly implemented parametric technique. This includes general training (e.g., parametric estimating processes and team-building) as well as detailed instruction (e.g., focusing on the “how-tos”). Appendix D, Related Web Sites and Supplementary Information, contains training sources.
When should a company integrate its key customers with the IPT? The contractor is responsible for integrating its major customer(s) with the IPT. When this is done depends on the contractor, how well defined its parametric estimating processes are, and whether the program to be estimated has been identified. The Reinvention Laboratory demonstrated, as a best practice, that key customer representatives should be included in the IPT before any proposal using a new parametric technique is submitted. Early customer involvement in the IPT, along with continuing communication among team members, is necessary for the successful implementation and acceptance of a parametric tool. Chapter 8, Other Parametric Applications, provides additional information.
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If a contractor presents a parametric proposal to a buying activity that is not prepared to evaluate it, can the buying activity refuse the proposal? A buying activity should not refuse a proposal because it is based on parametric techniques. If the activity does not have the expertise to evaluate such a proposal, it can obtain assistance from other sources, such as DCMA and DCAA.
However, a buying activity may return a parametrically prepared proposal if a contractor does not provide timely supporting data during the proposal process or during fact finding (e.g., calibration and validation data, descriptions of the model (including key cost drivers), pertinent parts of disclosed estimating policies and procedures). Also, as discussed in the previous FAQ, the contractor should work with buying activity representatives in the IPT before submitting a proposal based on a new estimating technique. Chapter 8, Other Parametric Applications,
considers this in more detail.
Who is responsible for deciding whether a parametric estimate should be accepted?
FAR 15.404-1(a)(1) states that contracting officers are responsible for evaluating the reasonableness of the offered prices. Their evaluations require the careful analysis of the proposals; development of negotiation positions; and, in sole source situations, negotiation of reasonable prices. Accepting a parametric estimate does not necessarily mean accepting the price offered. Each member of the IPT has an integral role in determining the acceptability of a specific
technique and is, therefore, key to deciding whether a parametric estimate is acceptable. Chapter 8, Other Parametric Applications, discusses best practices for IPTs involved with parametric activities.
What should the buying activities expect from Industry when parametric techniques are used to develop estimates for proposals?
The buying activities should expect that the parametric techniques used to
develop estimates for proposals have been adequately calibrated and validated by the contractor. The buying activities should also expect that the techniques are being used in the proper circumstances and are being applied consistently. In a parametrically prepared proposal, a contractor should provide adequate support, such as calibration and validation data, and descriptions of the key cost drivers. Chapter 7, Government Compliance, discusses proposal documentation
requirements. Again, if customers are not familiar with a parametric technique, then the contractor should explain it to them well before using it in a proposal.
Miscellaneous
What impact should the use of parametric estimating techniques have on both Government and contractor resources?
The use of parametric estimating techniques should provide many benefits. The primary one is that – once the CER or model has been calibrated, validated, and
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implemented – both the contractor and the Government should save significant resources as compared with traditional bottoms-up estimating. For example, there should be substantial savings in personnel once the model is understood and accepted as a reliable predictor of costs, because less time will be needed to develop, review, and negotiate the resulting output. The Reinvention Laboratory found that another major benefit is the streamlining of the proposal update process. Other benefits include a reduction in cycle time for both Government and contractor representatives, and a reduction in costs related to proposal preparation, evaluation, and negotiation. Parametric estimating, when implemented effectively, is a valuable tool for doing more with less. What is the biggest challenge related to evaluating and negotiating
proposals based on parametric techniques, and how can these challenges be resolved?
Cultural resistance is the biggest challenge to the successful implementation of parametric techniques. Cultural resistance generally results from a lack of knowledge and understanding of parametric estimating; however, it can be overcome by educating the acquisition community on methods for implementing, evaluating, and negotiating proposals based on parametric techniques. This education can be provided in a number of ways. First, the results of the Reinvention Laboratory demonstrated that the use of an IPT process is a best practice for implementing new techniques because it provides team members with a good understanding of parametrics. Second, this Handbook is a useful reference for those involved with parametric activities since it contains chapters on the evaluation and negotiation of proposals, as well as examples from the
Reinvention Laboratory. Third, a variety of parametric training courses are available (see Appendix D, Related Web Sites and Supplementary Information). After receiving initial training on a particular parametric technique (e.g., CERs, company-developed model, or commercial model), how much experience does an evaluator need to become a proficient user?
While evaluators need to have a good understanding of the parametric techniques used to develop specific estimates, they do not need to be proficient users of the specific CER or model. Evaluators need to have a good understanding of a contractor’s parametric estimating methodology. A company’s estimating practices should contain guidance on topics such as key inputs, parameter values, and calibration and validation procedures. As discussed in the previous FAQ, use of an IPT process, this Handbook and training should help evaluators obtain a good understanding of the key issues related to parametrics. When outside expertise is needed, the major buying activities, DCMA and DCAA, have people experienced with parametric techniques who can provide additional support. For example, DCAA can provide financial advisory services to contracting officers on such issues as the adequacy of proposal submissions based on parametric
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How can the buying activities communicate to Industry that the use of parametric techniques as a basis of estimate is acceptable?
The Reinvention Laboratory demonstrated that a contractor would be more likely to submit estimates based on parametric techniques if Requests for Proposals (RFPs) contained language permitting the use of parametrics. The following is an example of a RFP clause containing references to parametrics:
“When responding to the cost volume requirements in the RFP, the offeror and its associated subcontractors may submit cost estimates utilizing appropriately calibrated and validated parametric models that are part of their disclosed cost estimating systems. These include contemporary estimating methods, such as cost-to-cost and cost to noncost estimating relationships (CERs), commercially available parametric cost models, and company-developed parametric cost models. If necessary, reasonable and supportable allocation techniques may be used to spread hours and/or cost to lower levels of the work breakdown structure (WBS). The offeror’s use or non-use of the parametric estimating techniques for this proposal will not be a factor (positive or negative) in the evaluation of the offeror’s response to the RFP. Cost estimates submitted using such parametric models should produce cost estimates that are reasonable and consistent and, as such, create a basis for negotiation of a fair and reasonable price.”
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