“Contracting officers need improved expertise in both understanding and conducting price/cost analysis. The current gap in knowledge contributes to agencies missing cost saving opportunities as well as ventures to improve acquisition outcomes.
Exercising appropriate price analysis methods that come from adequate price analysis guidance and training would address this gap.” – 14th Annual Acquisition Symposium
- “A number of contract files that we reviewed did not demonstrate that prices paid were reasonable due to inadequate FAR price analysis methods.”
- “…it appears that contracting personnel do not know how to appropriately perform and document price analysis.”
- “In particular, two types of price analysis—references to market research and IGCEs—were performed and documented incorrectly more than 50% of the time.”
- “Previous price documentations were unjustified 43% of the time and 40% of price competition was found to be inadequate.”
- “Lack of justification in estimating the labor rates as follows:
Statements that historical rates were used without reference to any contract or data in file to back it up.
Escalation rates were applied to future years with no reference to the source of the escalation rate.
One escalation factor used was simply based on a quote in the DoD COTR handbook that stated “escalation between 2 and 3% is generally considered reasonable.”
IGCE creator used rates from a schedule with similar job titles, not similar services.
Unusual quantitative method used to determine an acceptable range of labor rates. Estimator took 4 quotes, averaged them, and then created a range by adding 20% to the average price, and subtracting 20% from the average price. No details why estimator used a +/- 20%. Made the range too large and not useful.
Only provided an estimated total dollar amount without a breakdown of labor mix, hours, or rates.” - “Though an IGCE was substantiated and could be used in justifying the reasonableness of the offered price, it had not been used. In the pricing memo, the IGCE is incorrectly stated as RS Means.”
- “Examples of the incomplete comparison with IGCE or use of unreliable IGCEs found in the file reviews:
Though a construction contract used RS Means to substantiate the IGCE, the winning price came in at $265k versus the IGCE estimate of $452K. The winning price only represents 58% of the IGCE. No documentation in the file justified why the IGCE was so high, despite plenty of offers alongside the winning price to justify the lower price.
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