(Editor’s Note. In addition to exploring “hot issues” in reasonable depth, the GCA DIGEST also tries to provide practical help in costing and pricing actions. In the following guest article, we attempt to give some insight into how the government will respond to a contractor’s cost proposal and what information you may want to consider providing in order for the government to justify awarding you the contract at an attractive price. The article was written by Katherine Szymkowicz who is a principal and consultant with The Acquisition Network (TAN) and before that was a Contracting Officer for the Federal Government (GSA, Navy,Army) for over eighteen years. Kathy can be contacted at 415-861-0556 and says “She’d love to talk with you”.)

As a contracting officer overseeing up to thirty COs and Specialists, I saw every type of submittal and heard every argument for a price that you can imagine. I have seen (through horrified eyes) negotiations stalled for months over the number of brooms to be used to clean a ten-story building. I’ve seen negotiations for a $10,000 job take over a year to complete! I have seen contractors walk away from the negotiation table because they simply couldn’t afford the time it was taking to submit their proposal in another format. How easy it could have been if only the contractors understood what the CO wanted.

It all comes down to the cost proposal. All business development effort and expense you put in is aimed at getting that cost proposal to the contracting officer. The better you understand what the CO wants and how the cost proposal is reviewed, the better are your chances of presenting a proposal that will result in the award of a price you want.

The CO receives the Government Estimate (GE) from the technical person supporting the job. The GE will be itemized into a format with a cost for each line, totaled for the bottom line GE. When you bid a job or are a part of competitive negotiations (i.e., “the Best Value”), bottom line is what counts. But during one-on-one negotiations the CO will be looking for agreement among those lines of numbers provided by the technical expert.

Most often the contracting officer reviewing a cost proposal is not a technical expert in the field for which the procurement is being made. This means the CO will depend very heavily on the Government Estimate that is prepared by the technical specialist. The CO will take the GE and assume it is correct. Your cost proposal will be compared, line by line, to the GE. Anything that does not match, whether higher or lower than the GE, will cause concern.

This approach emphasizes the need for your cost proposal to be in the same format as the GE. The more information you have up front about the Government’s estimating format the better. Most of the time the GE will itemize each work classification (i.e., Principal, Project Manager, Electrician, etc.) as well as materials, supplies, overhead and profit indicating percentage for each. If negligible, these and other items may be grouped as a single item but do not be afraid to over itemize.

If you have identified different work categories, the CO might question or disallow prices that are in fact close or identical to the Government Estimate because the cost is not recognizable to him in the format you provided. For example, your proposal might present Project Management as a single category for costs, showing a line item cost of $45,000 which includes costs for a site office. The Government Estimate shows Project Manager at $23,000 and Principal at $12,000. The CO looks at this, compares $45,000 to $35,000 and lets you know you are too high and it becomes clear after several rounds of (costly) negotiations that he will not accept more than $35,000. Now he has not told you what his GE looks like, so without asking the proper questions and giving him the proper information, you will not know that in fact your price includes elements that are not included in his.

In this case the CO has not considered the fact your Project Management includes the direct costs for the site office. The CO has allowed for this in the development of his overhead estimate. What he has not done is move it from the overhead allocation to the Project Management line to match your proposal. Your best approach at this point is to explain to the CO exactly what is included in your Project Management costs. Basically what you are attempting to do is show him that he has included the cost somewhere else, but you are not given the luxury of viewing his total proposal to know exactly where the costs are hidden. You must give him enough information to make the determination himself.

There are other circumstances where your costs are simply higher than the GE. When this occurs, it is your job to tell the CO why your costs are higher in such a way that he can justify the increase. Again, this can be a game of twenty questions since you don’t know exactly what the Government has based their estimate on. But with the right information, you can lead the CO to the place where he sees that your price is higher because you have included something that he did not include AND THAT HE NEEDS!

For example, your estimate shows 98 hours for Painters; the GE is much lower (though of course the CO won’t tell you how much lower, only that it is A LOT). Tell the CO exactly what the Painters will be doing and how you determined the hours. When you say “I allowed for 8700 square feet, two coats, you may find a difference in square footage or the CO may realize that the GE is based on one coat (the specs were vague). Or when you explain that OSHA requires two workers for the height involved, you may learn that the Government forgot that little detail in their estimate! But the more information you give the CO, the more he has to justify your price. Just remember that the CO will never write: “GE says 45 hours but the contractor insists she needs 98!” He will write:
“The GE allowed for a crew of one person, but OSHA regs for the height involved require a two person crew. The increased crew does not provide for accelerated accomplishment of the painting since the structure makes it impossible for more than one painter to work at a time for 80% of the effort.” But he will write this only after you have helped himunderstand the justification!

Justifying costs can be done by itemizing the work included and by using industry rules of thumb. “The CADD Specialist is producing this many drawings in this many hours, the Project Manager is 10% of the total labor hours. “ This type of reasoning gives the CO what he needs to justify your price.

The bottom line is realizing that the CO must justify any deviation from the Government Estimate. This line is higher, this line is lower and this is why. This is the purpose of the final Memorandum of Negotiations which results in your award. The GE and your proposal will be lined up, item by item and where there are deviations after negotiations, the CO will state the justification for the change to the GE. Where you do not provide adequate justification, the GE will remain unchanged and your price adjusted.

Understanding what the CO wants and why is the first step in successful negotiations. By providing the CO with a proposal in the proper format, then giving the justification needed for any areas of concern will likely result in a price you can love and will make the CO’s job easier. You can bet he will remember that next time he’s looking for a contractor in your field.

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