A. Audit
B. Fact-finding
C. Pre-award Survey
D. Cost Negotiations
E. Final Profit Negotiations
F. Contract Award
Although policy in FAR Part 215-404-4 states that contracting officers ….” do not perform a profit analysis when assessing cost realism in competitive acquisitions”, it is wise to understand that during Steps A trough D above, the contracting officer and his representatives are indirectly forming opinions of the risk to the contractor and the mix of cost elements in the proposal. That opinion directly effects profit negotiations and judgments at Step E, above.
Although the above FAR clause allows for 3 methods of profit negotiation, the most common method contracting officers use is the Weighted Guidelines Method.
ELEMENTS
Contractors should be aware that the Weighted Guidelines Method is mandatory for all negotiated procurements except Cost-Plus Award Fee Contracts and exceptions as approved by a higher authority. Contracting officers are to prepare their position using DD Form 1547 with associated backup and file it at the conclusion of negotiations.
Understanding the weighted guidelines method can assist in achieving a higher profit because a contractor can present a profit position in a contract proposal that logically supports the below elements required by FAR Part 215-404-4."Profit" during negotiation.
- Performance Risk
- Contract Type Risk
- Facilities Capital Employed
- Costs Efficiency
The detailed analysis guidelines for contracting officers under each of the above factors are contained at the following link:
It should be noted that the Facilities Capital Cost Employed (FCCM) factor (a separate DD Form 1861) does not always enter into small business negotiations, because many start-ups and smaller enterprises do not propose it as part of their allowable costs due to elements they cannot demonstrate in capital investment, land, buildings and similar items.
UTILIZING THE FORM FOR NEGOTIATION
A DD Form 1547 accompanies this posting. An Excel version with arithmetic formulas and a separate tab for DD Form 1861, FCCM, can be downloaded from the Box “References” cube in the top right margin of this site.
Study the form and its guidelines at the above link. Apply it to your proposal. This puts your perspective on profit into the same structure as the contracting officer is required to develop his.
When profit discussions ensue and the contracting officer takes a position, ask for a copy of his weighted guidelines analysis form. If he does not provide it, or has not prepared one, give him yours with your position on profit, updated to reflect costs negotiated during steps A-D above.
A reasonable discussion can then occur on the elements of profit negotiation and offers, counter offers and ultimate agreement can be equitably reached with a known structure addressing risk and other required factors.
SUMMARY
The majority of negotiated cost proposal effort involves coming to an agreement with the government via audit, fact-finding, pre-award survey and cost realism. But keep in mind that the government is forming an opinion on the elements of weighted guidelines profit determination during those stages as well.
You can influence the government negotiator (s) on the weighted guidelines profit elements during the early stages of negotiations as you settle on cost factors. You do so by presenting the data and narrative basis of estimate in such a fashion as to identify risk and other key area of weighted guidelines analysis. Insure the technical, management and cost volumes of your proposal, if they are required, are consistent in that regard.
Update your DD Form 1587 in your working file and prepare to use it as you settle on profit to conclude negotiations. Relate your profit position to weighted guidelines cost elements, as agreed upon with the government, supported by your proposal and any other documented disclosures you have submitted during negotiations. Doing so will support your position on profit and give the contracting officer an opportunity to accept it.
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