Transcript Proposal Preparation Techniques

Capture Team Success
Pratt & Whitney Rocketdyne
Supplier/Buyer Training
July 21, 2009
Capture Team Success
Presenters





Ed Kasaba
Greg Manley
Gary Pedersen
Jim Scarpati
Mike Suever
Capture Team Success
Supplier Proposal Training

This training is generalized in nature

Each Proposal has its specific requirements

No two Proposals are the same, but, many similarities
do exist

Programs tend to develop boilerplate RFQ/RFP
packages tailored to their specific customer
requirements

Buyer’s tend to modify boilerplates to satisfy their
needs – ensuring all requirements are there

So, we recognize RFQ/RFPs from various
programs/buyers look different – PWR working to
standardize the process
AGENDA
Capture Team Success














Disclaimer
Proposal Cost Overview
Firewall
Proposal Process
Proposal Compliance
Generating the proposal
Make/Buy
Types of Estimates
RFP/RFQ
Difference of RFP and RFQ and RFI
Source Selection
PWR Evaluation Criteria
Completing the PWR Proposal
Change Proposals
Mike Suever
Greg Manley
Ed Kasaba
Greg Manley
Mike Suever
Greg Manley
Mike Suever
Greg Manley
Mike Suever
Gary Pedersen
Gary Pedersen
Jim Scarpati & Greg Manley
Greg Manley
Mike Suever
Capture Team Success
Proposal and Contracts Overview
Customers
Capture Team Success
PWR has different types of customers and sales as identified below:

Government contracts - Prime. These consist of sales to
Department of Defense (DoD) (Army, Navy, Air Force, and other
DoD agencies); National Aeronautical and Space Administration
(NASA) development centers, laboratories, test centers; and other
Government departments and agencies (e.g., transportation,
energy, and so forth.). Also included are foreign military sales
contracted through a DoD or Government agency.

Subcontract. Programs within PWR may be contracted as a
subcontractor or team member to another aerospace company or
team of contractors on a Government contract.

Commercial and direct foreign sales. These types of sales are to
other companies for products or services not subject to
government procurement regulations, and to foreign governments
as a direct sale.
Capture Team Success
Business Life Cycle
Types of Solicitations
Capture Team Success









RFP
RFQ
ITQ
ECP
BAA
-- Request for Proposal
-- Request for Quote
-- Invitation to Quote
-- Engineering Change Proposal
-- Broad Agency Announcement

Used by DOD for basic and applied research not related to the
development of a specific system or hardware procurement
CAN -- Cooperative Agreement Notice

Used to advance and commercialize technology where
government has unique capabilities
NTE -- Not to Exceed Proposal
NRA -- NASA Research Announcement

Used by NASA for research interests in support of NASA
programs
PRDA -- Program Research and Development Announcement

Used by DOD for exploratory research that has general
application and is not system specific
Contract Types

Contract types are grouped into two broad categories:
Capture Team Success


Fixed price
Cost reimbursement

The specific contract types range from firm fixed-price, in which the
contractor has full responsibility for the performance costs and
resulting profit (or loss), to cost-plus-fixed-fee, in which the
contractor has minimal responsibility for the performance cost and
the negotiated fee is fixed. In between are the various incentive
type contracts in which the contractor's responsibility for the
performance costs and the profit a fee incentives offered are
tailored to the uncertainties involved in contract performance.

Time and materials contracts offer characteristics of both fixedprice and Cost-reimbursement type contracts. Indefinite-delivery
type contracts also offer unique contracting characteristics
Capture Team Success
Types of Contracts

Cost Reimbursable (Cost Type)
 Cost Plus Percentage of Cost (Illegal)
 Cost Plus Fixed Fee
 Cost Plus Award Fee
 Cost Plus Incentive Fee

Fixed Price
 Firm Fixed Price
 Fixed Price Level of Effort
Capture Team Success
Types of Contracts

Time and Material (T&M) Contracts

A T&M type contract provides for acquiring supplies or
services on the basis of both
a. Direct labor hours at specified fixed hourly rates that include
wages, overhead, general and administrative (G&A) expenses,
and profit.
b. Materials at cost, including, if appropriate, material handling
(overhead) costs as a part of material costs.
Capture Team Success
Contracting Methods

Formal advertising (sealed bid) is preferred by the
Government

Contracting by negotiation is the alternative

Governed by FAR 15-101

Basis for agreement on terms and price
Capture Team Success
Cost Type (Cost Reimbursable)

Costs are paid provided they are

Allowable – check FAR

Allocable – charge the right contract and
comply with the CAS Disclosure Statement

Direct or Indirect or G&A

Fee is based on “Target Cost”

Proposal and negotiations determine target
cost and are used to establish fee
Capture Team Success
Firm Fixed Price

Used when costs can be estimated with good
assurance e.g., based on recent production
cost experience

You do a defined job and get a defined
payment

Can be used for large production contracts

Risks and opportunities are high
Capture Team Success
Fixed Price Level of Effort

Used for small contracts or task orders
For example –

200 hours @ $200 / hour. Bill hours at a rate.

Your billing rate includes your profit.

Subtleties about engineering hours vs. business hours

Ensure contract is clear.
Capture Team Success
Risk vs. Reward

Cost reimbursable contracts inherently have limited
risk for the contractor. They are most frequently
used for new technology and research and
development contracts – not production.

Fixed price contracts involve risk. The contractor
needs to deliver a good product no matter what the
cost.

Profit opportunities may be greater on FP contracts
than on cost reimbursable.
Capture Team Success
Contract Modifications

The Government uses the “Changes” clause to add or
delete work

Must be in scope of original contract

Requires and “equitable adjustment” to contract cost,
fee, period of performance, schedule, place of
delivery, etc.

Change proposals are submitted and negotiated on a
fairly routine basis
Capture Team Success
What Is A Winning Proposal?
A business proposal is a written offer from a seller to a
prospective buyer. Business proposals are often a key step in the
complex sales process--i.e., whenever a buyer considers more than
price in a purchase.
There are three distinct categories of business proposals: formally
solicited, informally solicited, and unsolicited.

Having defined a proposal, what is a winning proposal?

What are the characteristics of the proposal, the
organization, and the solution which make it attractive to
evaluators?
Capture Team Success
What Is A Winning Proposal?
Winning proposals have four characteristics in common:

The supplier fully understands the needs and problems.

The supplier knows how to satisfy the needs or solve
the problems and offers a suitable plan.

The supplier is well qualified by virtue of experience and
resources, including personnel, to carry out the
proposed plan; and

The price asked is reasonable and is within the
organization's budget.
Capture Team Success
Governing Laws, Regulations & Policies

Legislation
 Truth in Negotiations Act (TINA)
 Anti-Trust Laws
 Foreign Corrupt Practices Act
 False Claims Act

Regulations
 Federal Acquisition Regulations (FAR)
 Cost Accounting Standards (CAS)

Policies
 Government directives
 Armed Services Pricing Manual (ASPM)
 Defense Contract Audit Agency (DCAA) manual
Capture Team Success
PWR
Firewall Training
Capture Team Success
PWR Firewall Training

Definition of a Firewall:
1. A process or procedure that limits the flow of
information from, to, or within PWR.
2. It is used primarily where unrestricted access to the
protected information might introduce bias or confer an
actual or apparent unfair competitive advantage to
PWR.
3. A firewall procedure specifies both how protected
information will be treated and with whom authorized
PWR employees (or consultants) may share the
information.
Capture Team Success
PWR Firewall Training

Types of Firewall Work Restrictions:
•
Duration of the Firewall
•
Physical Segregation of Work
•
Electronic Segregation of Information
•
Past Employment Restrictions
•
Future Work Restrictions
•
Information Marking Requirements
PWR Firewall Training
Capture Team Success

Firewall Procedure/Process:
1.
A firewall assures compliance with the terms of a
Nondisclosure Agreement (NDA) with another company.
–
A NDA assures that PWR will use that company’s
proprietary information only for the purposes identified
in the NDA
–
A NDA assures that only a defined group (e.g.,
employees and possibly contract labor and/or
consultants) who have a need to know the information
will have access to that company’s proprietary
information.
PWR Firewall Training
Capture Team Success

Firewall Procedure/Process (cont):
2.
3.
A firewall is appropriate when a Boeing organization is
involved in assisting an agency (or other customer) to
define the requirements for a program, and another
organization within PWR is likely to bid for the program.
- FAR 9.505-1 or 9.505-2 may prohibit PWR participation
in the subsequent procurement because of the concern
that PWR might craft the requirements so as to give it an
advantage against potential competitors.
A firewall may arise where PWR is a participant on more
than one team competing for a contract.
- It assures that the PWR IPT’s supporting the different
teams bidding for the contract do not share information
about their team’s proposal with persons supporting any
other team.
PWR Firewall Training
Capture Team Success

PWR Management Responsibilities:
- Manages the business.
- Primarily handles resource, commitment, programmatic
issues.
- Assures even and level competition.
- Programmatic and technical oversight.
- Executive communication with the customer – primarily
commitments.
- May have knowledge of multiple customer’s projects –
must firewall internally.
- Must restrict information given to the firewalled teams.
- Generally will limit information received from the
firewalled teams to a need to know basis.
- Should not participate in the development of the
customer’s strategy, concepts, program plans or any
other competitive aspects of his/her proposal/project.
PWR Firewall Training
Capture Team Success

Firewalled Team Responsibilities:
- Manages the Project/Program.
- Translates Prime requirements into specific PWR
technical system requirements and requests.
- Handles All Programmatic, Technical, and Business
Communication with the customer.
- Communicates technical and business data to the
customer.
- Communicates task requirements and outcomes with
process support personnel outside the firewall.
- Controls (i.e. filters & sanitizes) information flowing to
both the customer and the non-firewalled process area
support personnel to assure that competition sensitive
data, including both hard data and abstract information is
not transferred.
PWR Firewall Training
Capture Team Success

Non-Firewalled Process Area Support Team
Responsibilities:
- Defines task assignments with PWR Firewalled interface
- Performs & reports task outcomes to PWR Firewalled
interface
- Does not communicate with the customer
- Should limit work on more than one customer to the extent
possible
PWR Firewall Training
Capture Team Success

Restrictions:
Non-firewalled personnel SHALL NOT perform or participate in
the following:
- Development of the customer’s strategy, concepts, program
plans or any other competitive aspects of his/her
proposal/project.
- Generating, reviewing, or negotiating the customer’s
proposal, or of PWR’s proposal to the customer that would be
embodied by the customer’s proposal other than to provide
generic PWR data such as past performance, etc., or to
review specific portions of PWR’s proposal that clearly are
not competitive discriminators between the customer’s
proposal (e.g. PWR pricing data).
- Push suggestions that could “cross pollinate” a customer’s
ideas to other customer or PWR interfaces or otherwise
influence a customer’s competitive position on knowledge of
another customer’s proposal.
Capture Team Success
PWR Firewall Training

Third Party Proprietary Information
When PWR is working cooperatively with another
company, the obligation in the firewall should be limited
to protect proprietary information of the other party.
-
Even where the information is not marked, however,
it must be treated as protected if its contents are
clearly proprietary information, such as financial
information or trade secrets.
-
This information should not be shared with another
part of PWR or any other defined group.
Capture Team Success
What is a Non Disclosure Agreement (NDA)

A Non Disclosure Agreement is an Agreement between the
Parties that:
 Protects trade secrets and proprietary information
 Defines rights and obligations of parties with respect to
information being shared
 Describes nature of information, permitted use, type of
protection, how long will the information be shared, with
whom, etc.
 An NDA is a legally binding contract when executed by all
parties
Capture Team Success
When is An NDA Needed

NDAs are used generally when disclosure of
Proprietary Information will take place in the
course of discussions prior to execution of a
definitive business contract.

Prepared in connection with specific programs or
business or technical discussions
Capture Team Success
Non Disclosure Agreement (NDA)

An NDA is not required when the exchange of data
occurs under the scope of a purchase order (PO) that
incorporate proprietary information protection in the
Pratt & Whitney Rocketdyne, Inc. (PWR) General
Provisions unless there is a PWR/program requirement
to obtain a separate agreement even though PO
includes the proprietary information.
Capture Team Success
PWR Proposal Process
Capture Team Success
Pre-RFP Planning

Identify customer needs/funding constraints

Understand market needs

Identify competition and determine their approach

Evaluate your strengths & weaknesses vs. competition
& customer expectations

Identify your proposal team and sub-tier suppliers

Generate capture strategy - win factors, themes

Identify key personnel -capture team (Engineering
processes, OPS, C&P, QA, others as needed)

Identify requirements

Develop PA budget for management and team
(inchstone level)

Identify IR&D/capital requirements
Proposal Process
Programs
Marketing
Business Plans
Should Cost
Capture Team Success
RFP
RFQ
Program Manager
Contract Manager
Cost Volume/Business
Manager
Establish:
• Due Date
• RFP Requirements
• Deliverables/MIR’s, T&C’s
•
•
•
•
Detail Estimating
• Task Descriptions
• Estimate
• Basis of Estimates
•
•
•
•
•
•
Labor Standards
CERs
Detail Estimates
Parametrics
“Similar To’s”
Round Table/
Expert Opinion
• Supplier Quotes
• P.O. History
• Catalog Prices
Program Manager
Project Engineer
Cost Volume/BM
Mgr.
Program
Definition
Function
Overview
Develop
Proposal
Strategy
Market
Price
Estimating & Pricing
Program Manager
Project Engineer
Cost Volume/Business
Manager
Estimating Methodology
“Similar To: Programs
Make/Buy
Affordability/DTC Goals
Function Directors/VP
Functional Review
• Evaluate Estimating
• Access Cost Risk
(if any)
Substantiation (-3’s)
• Labor
• Material
• ODC
Prepare:
• Program Plan
• Program Schedule
• Test Plan
• Bill of Materials (M/B)
• Work Breakdown Structure
• Resp. Assignment Matrix
Program Manager
Project Engineer
Cost Volume Mgr.
Functional Mgr.
Risk Assessment/
Commitment
Evaluate Risk
•Assume Risk
•Revise Estimate
•Rescope
Technical &
Cost Volume
Manager
Complete
Technical
Volume
Pricing
Actions &
Prepare
Cost
Volume
Present/Discuss:
• Program Approach
• Pricing Strategy
• Estimating Assistance
• Identify “Similar To”
Profit Analysis
Risks and
Opportunity,
Capital Investment
Cmt Review Cycle
•Est. & Pricing
•Contact Mgmt.
•Executive Mgmt.
Publish
Cost/Technical
and Mgmt
Volumes
Program Manager
Contract Manager
Cost Volume Mgr.
Support
•Audit
•Fact Finding
•Negotiations
Capture Team Success
Proposal Process Overview
Analyze the Proposal Requirements
Capture Team Success

Read the request for proposal (RFP)
 Understand the statement of work (SOW) and proposal type
 Generate ground rules and assumptions
 Proposal preparation guidelines
 Due date
 Required volumes
 Page and print specifications
 Evaluation criteria
 Technical description (SOW)
 Expected program length
 Expected program cost
 Procurement contract type
 Deliverable items (hardware, data, etc.)
Create and generate a compliance matrix early
Capture Team Success
Think of the RFP as a Quiz

Answer the questions clearly and explicitly

What?
-- SOW/WBS/program plan

How?
-- Baseline/tech approach

When?
-- Master program schedule

Who?
-- Organization/RAM

Where?
-- Facilities

Why?
-- Discriminators, themes, trades
Beginning of the Proposal Process

Capture Team Success
















Proposal manager identified
Review available data
Capture strategy
Program overview
MIRs or selection criteria - Win factors, themes
Develop WBS & dictionary
SOW & specifications
Design-to-cost targets
Program schedule
Risk management plan
Business plan (Program Performance Plan)
Establish technical concepts
Program organization
Make/buy plan
Hardware list
Test plan
Determine profit objective
Capture Team Success
Proposal Compliance
Developing Requirements Matrices
Capture Team Success
Proposal Receipt

RFP receipt by PWR Contracts

Accounting Established

Proposal Plan of Action Developed

Proposal Manager Calls Kick-off meeting

Proposal Team begins the Requirements Review and Shred

Systems Integrity develops Supplier Flowdowns
Capture Team Success
Purpose

Ties proposal response to requirements and
evaluation criteria

Flows RFP requirements to proposal outline

Tool for establishing proper page count

Ensures compliance with proposal requirements
Capture Team Success
How Matrix Developed

We use a macro developed in house that parses a Word
document into an Excel spreadsheet*

We then use the spreadsheet to develop an annotated
proposal outline with descriptive headings, section
assignments, page allocations, graphic notes, themes,
writing assignments/instructions, and linkages to customer’s
evaluation criteria
*This is an inexpensive option, but there are products available on the market that will parse
RFPs. See APMP.org
Requirements Matrix
Capture Team Success


Each requirement should be a separate line
Most Important Requirements (i.e., Evaluation Criteria) drive page allocation
RFP
Section
Part Two
Part Two
Part Two
Part Two
Part Two
Part Two
Part Two
Part Two
Part Two
Part Two
Part Two
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section I
Section II
Section II
RFP
Para
RFP Requirement
PROP
VOL NO
2.3 Cost, Schedule & Milestones
3.1 SOW
3.9 Cost Schedules and Milestones
1
4.2.1 Proposal Information
4.2.1 The typical proposal should express a consolidated effort in support of one
or more related technical concepts or ideas.
4.2.1 Proposers must submit an original and five (5) copies of the full proposal
and one (1) electronic copy of the full proposal [in PDF (preferred)] on a CDROM. Each hard copy must be clearly labeled with BAA, proposer
organization, proposal title (short title recommended), and Copy _ of 5.
All
RESP
AUTHOR
SECTION TITLE
1
2.3, 3.9 Cost, Schedule & Milestones
Transmittal Letter
1 Admin.
2.1 Period of Performance
3.1.1 Procurement Integrity, Standards of Conduct, Ethical Considerations,
and Organizational Conflicts of Interest
4.2 Contractor teams should include activities and costs for both Phase 1 and
Phase 2 within their proposals.
4.2.2 Proposal Format
4.2.2 Proposals shall consist of two volumes.
4.2.2 All pages shall be printed on 8-1/2 by 11 inch paper with type not smaller
than 12 point, however, 10 point font may be used inside graphs, tables,
and figures.
4.2.2 The page limitation for full proposals includes all figures, tables, and
charts. Except for the attached bibliography and Section I, Volume I shall
not exceed fifty (50) number pages.
4.2.2 Copies of not more than three (3) relevant papers can be included with the
submission.
4.2.3 Volume I, Technical and Management Proposal
4.2.3 Section I. Administrative
4.2.3 A. Cover sheet to include:
(1) BAA number
4.2.3
(2) Technical area
4.2.3
(3) Lead Organization Submitting proposal
4.2.3
(4) Type of business
4.2.3
(5) Contractor’s reference number (if any)
4.2.3
(6) Other team members & type of business for each
4.2.3
(7) Proposal title
4.2.3
(8) Technical point of contact
4.2.3
(9) Administrative point of contact
4.2.3
(10) Date proposal was submitted
4.2.3
4.2.3 B. Official transmittal letter.
4.2.3 Section II. Summary of Proposal
4.2.3 A. Innovative claims for the proposed research.
PROP
SECT NO
Bromberg
Pomatto
Bromberg
n/a
n/a
Lu
n/a
Soliz
n/a
All
ALL
PAGE Verify
COUNT /Initial
White/Soliz
White/Soliz
White/Soliz
White/Soliz
50
White/Soliz
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Volume 1
Cover Ltr n/a
Volume 1
Volume 1
Technical & Management Proposal
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Cover Sheet
Transmittal Letter
2 Summary of Proposal
2.1 Innovative Claims
1
1
1
1
1
1
1
1
1
1
1
1
Lu
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Pomatto
Frye
Frye
50
n/a
2
Develop a separate matrix for Data Requirements Deliverables
1
SB-001 Financial
Management
Report
3
+30
days
X
Description and SOW
Paragraph Number
Groundrules
and
Assumptions
Number of Hours/
Total
Submittals Submittal Hours Concur
Other
Quarterly
WBS
Monthly
System PDR
PDR -60 days
Component level PDRs
System SDR
Component SDRs
SRR
ATP
Submission Events
IBR
Title
Proposal
Line DRD
Type
Capture Team Success
DRD Matrix
1.2.1
The M/Q report shall provide a Assume Monthly
report for projecting costs and Earned Value
equivalent personnel (EPs) for Report
evaluating contractor's actual
cost and fee, for the planning,
monitoring, and controlling of
project and program resources,
and for accruing cost. This data
will also be provided
electronically via reporting
requirements and data elements
provided in this DRD 1.2.1
40
8
320 Smith
Capture Team Success
How Suppliers Can Help

We recommend that Suppliers use a similar principle in
reviewing PWR Requests for Proposals or Quotations

Often, we have tried many ways of identifying key/critical
elements needed within the proposal and with rare exception
they’re missed

In the past, we have bolded the key/critical elements,
developed checklists, etc. to no avail.

We welcome any ideas on how to get our RFP’s read by the
Suppliers!!
Capture Team Success
Generating the Proposal
Capture Team Success
Proposal Preparation

Proposal Outline

Themes

Mockup

Technical & Cost are to be Prepared Together

Approach must be Life Cycle Oriented

PWR Affordability Process

Proposal Schedule
Proposal Steps
Capture Team Success
Customer RFP Requirements
RFPGround-Rules and Assumptions
Statement of
Terms and Conditions
Work
Design to Cost (DTC) Targets
Work Organization & WBS Task Description
WBS
Program Plan
Work Decomposition
Contract Data
Requirements/Data
Requirements etc
Integrated Program Master
Schedule/Major Milestones and
Activity Schedules
Make/Buy
Task Planning
Scope Risk and Opportunities
Identify R&O’s when Estimating
Assess/Identify
Scope for
Reduction
No
Estimate Development
Identify Historical References or other Basis
for Estimate – Data Driven Estimates
Target Assessment
Estimate
Development
Hrs, mat’l, ODC
Price Tasks within
WBS
– 1st Pass,
Compare to Target
Within
DTC
Target?
Yes
Price Task
Price Tasks
Capture Team Success
Proposal Planning Steps
Develop:

Proposal schedule

Executive/process management review plan

Volume outlines

Proposal responsibility assignment matrix

Identify attendees to kick-off meeting

Identify relevant program history from which to base estimates

Proposal ground rules & pricing instructions

RFP compliance matrix

Plan proposal kickoff meeting
Capture Team Success
Study the RFP, Then Create the Outline

Write the outline to match the RFP
 What the customer asked for, the way they asked for it
 Redline the RFP–then write your outline

Analyze the similarities and differences in:
 Instructions, Evaluation Criteria and Technical
Description/requirements

Choose a technique to address all areas:
 Embed one section's requirements within another
 Cross reference to account for all requirements

Coordinate outline with compliance matrix
Capture Team Success
Proposal Kick Off Meeting (PPOA)

Brief proposal team operating groundrules

Brief Program requirements, MIR’s, Potential Competitors etc

Distribute SOW, specifications, WBS etc.

Brief proposal outline, mockups, and executive summary

Distribute schedules, RAMS, budgets (hours/task for each
person)

Communicate Make/Buy plans (ie for the Bill of Material)

Distribute DTC goals for each IPT

Communicate Tech Volume and Cost Volume requirements

Identify outstanding information and action plan
Technical and Cost are Prepared in Parallel
Capture Team Success
Technical Proposal Phases
Capture
Planning
Outline
Mockups
Draft
Final
Proposal
Cost
Targets
Design
to Cost
Basis of Preliminary
Final
Estimates Cost Run Cost Run
Cost Proposal Phases
Each Technical Proposal phase has a counterpart
Cost Proposal phase
The Proposal Schedule (30 days)

Capture Team Success

Must be complete prior to kickoff meeting
Should include:
 Exact calendar dates based on RFP data
 Kickoff Preparation
 Include capture team products
 Proposal input preparation periods
 Final Outline
 Mockups
 Drafts
 Final revisions complete
 Pricing schedule
 Final cost targets
 Manpower inputs/BOEs
 Subcontractor/purchased material bids
 Final pricing runs
 Reviews
 Printing/Shipping
Make it as detailed as practical
Update and status every day–highlighting concern areas
Capture Team Success
Fact-Finding

PWR Pricing acts as lead to support ALL audit activities

Provides DCAA, etc. With proposal copies

Coordinates all meetings between DCAA & PWR staff

Documents all issues and responses

Attends exit conference

CA acts as lead to support all fact finding activities

Coordinate all meeting between customer & rd

Documents all issues and responses

PM & functions support both as need
Capture Team Success
Negotiations

PWR Legal/CA acts as lead to support ALL Negotiation
activities

coordinate all meeting between customer & RD

documents all issues and responses

exchanges offers & counter offers

Summarize cost impacts for Management

PM & functions support both as need

Pricer updates C&P data & coordinates disclosures w/CA

Pricer performs sweeps & certs if applicable

CA completes memo of negotiations
Capture Team Success
Make/Buy
Capture Team Success
Make or Buy Planning Process



Executive Mgmt responsible will co-Chair or appoints
Program Manager to co-Chair the Make/Buy Committee
Operations Executive Mgmt will co-Chair or delegate to a
subordinate manager the Make/Buy Committee
Make/Buy Committee consists of:
 Finance
 Supply Management (Committee Secretary)
 Engineering
 Quality Assurance
 Business Development
 Contracts
 Human Resources
 Small Business Administrator
Capture Team Success
Make or Buy Planning Process

The Make/Buy decision making process divides parts and
processes into the following three categories:

Must Make: Hardware consisting of details,
subassemblies and assemblies that historically demand
extreme attention & close coordination between
functions.

Must Buy: Hardware such as raw material,
castings/forgings, catalog or industrial hardware that
PWR cannot produce.

Can Make or Buy: Hardware not contained in the above
categories and could be made in house or procured.
Typically, the majority of Program requirements fall into
this category.
Capture Team Success
Make or Buy Planning Process
A Bill of Material (BOM) or conceptual BOM is developed by
the Integrated Product Team and/or Engineering.
The Integrated Product Teams, based upon recommendations
from PWR Operations, and in conjunction with their Industrial
Systems Integration Teams performs an assessment of
capacity, capability, overall costs required to support the
program and develop a sourcing strategy.
Capture Team Success
Make or Buy Planning Process

IPT presents the program sourcing strategy of make or buy
recommendations to the Make/Buy Committee

The Committee is responsible for sourcing material in a
manner the best utilizes PWR Operations’ and Supplier
resources.

Prime consideration is given to quality, cost and
schedule requirements

The Committee reviews the Program Sourcing Strategy
considering core competencies, cost, schedule, risks,
requirements, Small Business objectives, etc.

A Specific Program Make/Buy Plan developed & Approved

Plan integrated into the Program Execution Plan
Uniqueness
Capture Team Success
Make/Buy Analysis
Unique Components
(LTA’s, Strategic Alliances, Etc)
Strategic In-house Make
(Must Make)
Buy – Common Not a Comp Adv.
Competitive Advantage
(Can Make/Can Buy)
Competitive Advantage
Success
Team
Capture
of Occurrence
Likelihood
Supplier Risk Assessment
Risks
High
5
6
4
Medium
4
3
4
3
7
1
2
6
5
2
Mitigation Status
1
5
Low
1
Original
Change
3
7
2
3
4
Consequence of Occurrence
5
Capture Team Success
Manufacture or Purchase Planning
Process

Internal Process to decide:
 Sufficient capacity and support to core competencies
exist to make product
 If not, recommend outsourcing
 Decision to be in concurrence with the PWR-Operations
Strategic Plan

Similar to Make or Buy – Committee formed to review same
as Make or Buy
 Normally convenes after Prime Contract Award to PWR

Analysis performed to consider Program schedules, cost,
shop load and process capabilities and risks

Upon analysis completion, subcommittees present
recommendations to Committee

Committee approves and documents manufacture or
purchase plan
Capture Team Success
Types of Estimates
Types of Estimates
Capture Team Success
 Within the proposal process, various kinds of estimates and quotations
are prepared as defined in the following text. These definitions are
consistent with those published by the Society of Cost Estimating and
Analysis (SCEA) and DoD. Cost estimates are primarily prepared to
respond to solicitations, however; they are also prepared to support
technical studies, life cycle cost (LCC), cost as an independent variable
(CAIV), "what if exercises, and design trade studies.
 Budgetary and Rough Order of Magnitude(ROM) - These estimates
are for comparative studies on new programs and long-range
procurement planning for established programs. Both the customer and
PWR use them for analysis, preliminary program planning and
scheduling purposes, and establishment of fund allocations. These
estimates are usually prepared from minimum design and work
statement information. Planning, budgetary, and rough order of
magnitude (ROM) estimates do not bind PWR to perform a contract
within a given price. However, because of the frequent reliance on these
cost/prices for fiscal year funding and procurement planning and
scheduling, considerable effort is made to achieve accuracy in their
preparation. Contingencies may be added to these estimates to cover
uncertainties.
Types of Estimates
Capture Team Success
 Firm Quotations - These are prepared to definitize the price of a program
or work package. When definitized, the price is a binding obligation on
PWR. Estimates for firm quotations are normally based on well-defined
statements of work and plans, but can also be based on minimum design
and work statement information.
 Not-to-exceed (NTE) - A not-to-exceed (NTE) estimate is a firm and
binding obligation by PWR to perform at a cost to the customer not
greater than the NTE quotation, assuming no change in the contractual
baseline. NTE estimates are generally quoted to a customer when the
statement of work and other conditions are definitive enough to establish
a firm baseline. A contingency is often added to allow for definition and
cost estimating uncertainties.
 Not-less-than (NLT) -A not-less-than (NLT) estimate is a firm credit
estimate by PWR and includes all requirements of an NTE proposal
except for the ensuing commitment, which will not be less than the NLT
quotation.
Capture Team Success
RFP/RFQ Process
RFQ-RFP Training
Capture Team Success
Difference of RFP and RFQ and RFI
Capture Team Success
Difference of RFP and RFQ and RFI

Definitions

Types of solicitations

Evaluation criteria

SPI Process
Capture Team Success
Difference of RFP and RFQ and RFI

Request for Proposal (RFP)

Request for Quote (RFQ)

Request for information (RFI)
Capture Team Success
Difference of RFP and RFQ and RFI
DEFINITION of RFP:

Request for Proposal (RFP) - A solicitation to
prospective suppliers where the supplies and/or
services described are highly complex,
undeveloped products and/or services, requiring
a response detailing technical and management
expertise and a proposed design/development
approach.
Capture Team Success
Difference of RFP and RFQ and RFI
DEFINITION of RFQ:

Request for Quotation (RFQ) - A solicitation to
prospective suppliers wherein the requirements
described are existing, “off-the-shelf” equipment,
build-to-print parts with known specifications,
common services, or otherwise sufficiently defined
so that the award can be made on the basis of price
and past performance from the responsive bidders.
Capture Team Success
Difference of RFP and RFQ and RFI
DEFINITION of RFI:

Request for information (RFI) - is a standard
business process whose purpose is to collect written
information about the capabilities of various
suppliers. Normally it follows a format that can be
used for comparative purposes.

An RFI is primarily used to gather information to help
make a decision on what steps to take next. RFIs
are therefore seldom the final stage and are instead
often used in combination with the following: request
for proposal (RFP), and request for quotation (RFQ).

See Sample RFI – NASA Display of Shuttle and
SSME
Capture Team Success
Types of solicitations

A solicitation is a document, sent to prospective
contractors by a Government agency, requesting
the submission of offers or information. This is a
generic term that includes the following types of
solicitations:

Invitations for Bids (IFBs)

Requests for Proposals (RFPs)

Requests for Quotations (RFQs)
Capture Team Success
Invitation for Bids (IFB)

The Invitation for Bid (IFB) is the solicitation document used in
Sealed Bidding procurements.

IFBs must describe the Government’s requirements clearly,
accurately, and completely.

It includes all documents needed by prospective bidders for the
purpose of bidding plus all terms and conditions of the
prospective contract (except price) so that all bidders will submit
bids on the same basis and award can be made solely on the
basis of price and price-related factors.

FAR 14.101. You will use this type of solicitation when your
requirement is definitive, pricing is stable, competition is
expected, and there is not a need to hold discussions with any
potential bidders.
Capture Team Success
Buyer’s Role in the RFQ/RFP Process

Upon receipt of a requirement the Buyer reviews and
determines if the originating organization(s) has
furnished complete specifications, blueprints,
statements of work (SOW), description of item(s) to be
purchased, etc., so that requirements can be
adequately defined in the RFQ/RFP and any resulting
Purchase Order (PO).

The Buyer will contact originating organization(s) or
Integrated Product Teams (IPTs) if additional data is
required.
Capture Team Success
RFQ Structure

The Buyer is responsible for the entire content of the
RFQ. The RFQ should be structured in such a
manner to assure that all requirements are clearly
delineated on the RFQ and that the supplier clearly
understands the requirements.

In some cases, the Buyer may need to provide
additional clarification of the requirements to assure
complete understanding by the supplier. In such
cases, the Buyer is responsible for providing
consistent information to all solicited suppliers.
Capture Team Success
TINA, CAS, SB Plan

REMINDER:

During solicitation phase for Government
procurements $500K and above, consider the
applicability of:

TINA - $650K (FAR 15.403-4)

CAS - $650K (FAR 52.230-2)

SB Subcontracting Plan - $550K (FAR 52.219-9)
Supplier Steps To Providing A Responsive
Proposal
Capture Team Success


Do’s

Read the RFP Instructions

Contact the Buyer regarding RFP questions

Meet the RFP deadline and provide a Proposal which
meets the RFP instructions

Protect PWR proprietary data

Protect Export controlled data
Don’ts

Contact technical personnel for questions during the
proposal process unless Buyer instructed

Wait to the last minute to ask for an extension

Continually ask for extensions
Capture Team Success
Request for proposal
Key objectives

Obtain correct information to enable sound
business decisions.

Ensure that all suppliers have an equal
understanding of the requirements.

Enable a broader and creative range of solutions
to be considered.

Responsive Bids allow PWR purchasing to
evaluate proposals to obtain a favorable deal.
Capture Team Success
Evaluation Criteria

Responsive Bid
 Price
 Delivery
 Technical Solution
 Past Performance (SPI)
 Financial Stability
 Agreed Upon Terms & Conditions
Capture Team Success
Steps In The RFP Evaluation Process

Step One: Review All Proposals

Step Two: Determine Status. Determine if proposal is
“responsive” or “non-responsive”

Step Three: Score Proposals based on criteria established
in the RFP

Step Four: Discuss Proposals. The evaluation committee
reaches a “unified understanding” of the criteria and
corresponding responses. Individual scores may be
adjusted at this point based on discussion. Tally results.

Step Five: Interview. This step is optional. This is an
opportunity for both sides to explain their viewpoints
Capture Team Success
Steps In The RFP Evaluation Process

Step Six: Discussion/Negotiation. This step can be
optional, but may be required.

Step Seven: Best and Final Offer. This is optional. Once a
BAFO is received the committee will evaluate it in the
same manner as the original proposal.

Step Eight: Recommendation. Written recommendation
includes scores, justification and rationale for the decision.

Step Nine: Management Review of committee scoring and
justification. If accepted, the winning proposal will be used
to roll up in PWR proposal or award PO to supplier if using
company funds or after PWR is awarded a contract.
Capture Team Success
Source Selection
Capture Team Success
Proposal/Source Selection
1.
2.
3.
4.
Receipt of Proposal
Best Value Proposal Evaluation
 Quality Performance
 Schedule Performance
 Price
 Non-recurring costs impact to overall
price evaluation
 Proposal Evaluation Tool (SPI Tool)
 Terms & Conditions
Technical Evaluation (as required)
Source Selection Board (as required)
Capture Team Success
Source Selection
PURPOSE AND SCOPE:

To define the process for fairly and ethically
evaluating and selecting best value sources
of supplies and services.

Competitive Procurements

Non-Competitive Procurements
Capture Team Success
Source Selection process

PWR Buyer Criteria – See PWR 5.3.2

Selection Process

Competitive (Best Value – SPI evaluation)

Non-Competitive (Determination of reasonableness)

Fact-finding

Negotiation

Award
Capture Team Success
Evaluation of Quotations or Offers

Many source selections are relatively straight forward and
may be completed primarily on the basis of price
competition. Other more complex source selections require
an assessment of other factors.

Best Value Analysis - An evaluation technique based upon
an integrated assessment of a supplier’s technical,
management, cost or price, and schedule elements, as well
as the supplier’s past performance record with PWR,
intended to select the source offering the greatest overall
benefit in response to the requirement.
Capture Team Success
Lowest Evaluated Proposal
• Price Analysis based on comparing two or
more proposals using the Supplier
Performance Index (SPI) model.
Capture Team Success
SPI Process
• A formula used to evaluate suppliers’ delivery and
quality performance.
• The model is weighted: 40% SDR (Supplier
Delivery Rating) and 60% SQR (Supplier Quality
Rating).
Capture Team Success
SPI Calculation

The Supplier Performance Index (SPI) is calculated
as follows:
Here are some sample calculations:
2 – ( SQR * .60 + SDR * .40) = SPI
100
SUPPLIER A
SUPPLIER B
SUPPLIER C
2 – ( 0.588 + 0.400 ) = 1.012
2 – ( 0.582 + 0.388 ) = 1.030
2 – ( 0.528 + 0.352 ) = 1.120
How is the SPI used?
Capture Team Success

PWR buyers use the SPI as the primary factor in their evaluation of
supplier proposals for inspected items. The example below
illustrates how it works.
QUOTED PRICE
multiplied by SPI
EVALUATED PRICE
SUPPLIER A
$1,035.00
1.012
--------------$1,047.42
SUPPLIER B SUPPLIER C
$1,050.00
$1,023.00
1.03
1.12
------------------------$1,081.50
$1,145.76
Supplier A could be selected for the award, even though their quoted
price was not the lowest.
The closer a supplier’s SPI is to 1.000, our experience indicates, the
more likely they will meet PWR’s quality and delivery requirements.
Capture Team Success
Fact-Finding

PWR Fact-Finding Questions will be covered in
our next section

Certified cost and pricing data will be discussed
in the next section
Capture Team Success
PWR Evaluation Criteria and Process
Capture Team Success
Agenda

PWR Price / Cost Analysis

Fact-Finding

PWR Technical Evaluation of Supplier Proposals

Funding Profiles, Ogives and PTL
Capture Team Success
PWR Price and Cost
Analysis
Greg Manley
July 2009
Capture Team Success
Why Do We Need a Cost Analysis?

For government contracts, the Truth in Negotiations Act (TINA),
requires the submission of cost and pricing data:
 When the proposed price is expected to exceed $650,000.
 When the pricing of a change or modification to a contract
exceeds $650,000

For commercial contracts a cost analysis is required:
 To comply with company procedures.
 Because it makes good business sense.
Capture Team Success
What is a Price Analysis?

A price analysis is the process of examining and evaluating a
prospective price by comparing the price with other available
pricing

Typical price analysis techniques include:
 Competition
 Catalog/market pricing
 Comparison to other costs (historical, similar-to, in-house
estimate, parametric/cost estimating relationships)
 Value/visual analysis
Capture Team Success
What is a Cost Analysis?

A cost analysis is the review and evaluation of the
separate cost elements and proposed profit of a
supplier’s cost or pricing data.

It is the judgmental factors applied in projecting from
historical data to the estimated costs to form an
opinion on the degree to which the proposed costs
represent a fair & reasonable the cost.

Both of the above items assumes reasonable
economy and efficiency
Capture Team Success
Overall Cost Analysis Process
Supplier SOW
Development
Receive Request
for Cost/Price
Analysis
Draft &
Submit RFP
to Supplier
Receive
Supplier
Proposal
Start Field
Fact-finding
Receive
Technical
Evaluation
Request DCAA
Assist Audit*
Request
Technical
Evaluation
Approve Cost
Analysis Plan
(CAP)**
*
**
Preliminary
Fact Find
Questions
Receive
Clarification
Responses
from Supplier
Support Negotiations as
Member of the Team
Issue Cost
Analysis
Position
Complete
Fact-finding
Receive DCAA
Assist Audit
Report*
Documentation
Sign-off
Support Prenegotiation
Review
Only on Government Contracts
Optional
Note: Some of these tasks will overlap or will be done in parallel with other tasks.
Capture Team Success
DCAA Assist Audit

In the event a subcontractor denies access to their cost & pricing or rate data the
Cost Analyst should request DCAA audit or rate verification

The DCAA audit request is initiated by submitting a request in writing to the cognizant
ACO, along with a copy of the subcontractor’s proposal. The request will identify the
supplier, contract number and any specific audit needs, i.e. Material, labor hours, rates,
etc. or just direct and indirect labor rates

A report will be released by the DCAA to the cognizant ACO

The ACO will release the report to the requesting Cost Analyst

The DCAA’s findings will be utilized in the final cost analysis report.
Cost Analysis Process
Capture Team Success
The Supplier Management Agent/Buyer is responsible for:

Request cost analysis from the Finance Cost Analysis if
thresholds are exceeded

Requesting additional information from the supplier (as required)
to complete a cost analysis

Supporting fact find (as required)

Responsible for understanding the logic/details of the cost
analysis as completed by the cost analyst

Preparing procurement board/memo for review with management.
Capture Team Success
Learning Curve

Rate of Improvement
 100% curve slope = no learning
 Robots, 100% automated (very rare)

Rate is less when most of the work is done by machines
(flatter slope)

As a task is repeated, the more efficient the task becomes,
due to operator efficiency, tool design, method and
process improvements, etc

All areas of the enterprise contribute to the overall
performance
Capture Team Success
Learning Curve

The greater the amount of manual labor, the greater the
opportunity for improvement
(steeper slope)

The steeper the curve slope (lower curve %) the greater
the rate of improvement.
Learning Curve
Capture Team Success

Determining the Curve Slope

First, perform regression analysis of the actual data.
 If the projection produces an unrealistic answer, the
correlation is poor, or you have only one data point,
then:

Use a force curve using a single data point based on a
historical curve slope for a similar item. If no historical
slopes are available, then:

Then use the following rule of thumb curve slope
percentages:
 Sheet Metal
95%
 Machining
90%
 NC Machining
95%
 Assembly
85%

There are published lists of curve slope percentages.
Capture Team Success
Learning Curve

Advantages
 Universal tool
 Projects continuous improvement
 Uses past performance to project the future
 Able to find line of best fit

Disadvantages
 Need to be aware of make/buy and process changes.
 Must have data to develop.
 Manufacturing problems are included in the historical
data base (rework, scrap, etc.)
Capture Team Success
Quantity Adjustment

An attempt to normalize (adjust) the historical data base (as
it relates to procurement quantities) to a constant base, in
order to account for large changes in quantities

When the item being procured has a large amount of
fixed cost or is a common commercial item, then that
quantity break is appropriate

Curve would be 100% with no fixed cost

As fixed cost increases, the curve slope % decreases.
Capture Team Success
Material

Material–purchased items/services which become part
of the final, deliverable product

Four common categories of material are as follows:

Raw material—requires further processing.

Subcontracted Items—assembled parts that have been
offloaded to another supplier for manufacture.

Outside processing.

Purchased parts—parts processed from raw material
that are bought complete.
Capture Team Success
Material


Bill of Material (BOM)

The engineering drawings are the source of the
BOM.

An itemized listing of all the material
items/services that are required to build a
product.

Determine the best value supplier and associated
cost for the material item or serves.
Typically the BOM is evaluated by validating a
sample of the total parts or BOM.
Capture Team Success
Rate Verification

Forward Pricing Rate Agreement
A written agreement negotiated between a contractor and
the government to utilize certain rates or prices during a
specified period in pricing contracts or modifications
Represents reasonable projections of specific costs that
may not easily be estimated for, identified with, or
generated by a specific contract
May include rates for labor, indirect costs, scrap,
obsolescence, etc.
Capture Team Success
Rate Verification

Government audits
 Accounting and/or technical audit performed by a
government agency

Government accounting audit is requested when
PWR does not have audit rights

Government technical audit is required when
supplier will not provide cost/pricing data to PWR
(i.e., Labor hour history).
Capture Team Success
Fact-Finding
PWR Fact-Find Questions
Capture Team Success
The following data is the standard supporting documentation the Cost
Analysis Department requests when certified cost and pricing data is
required:

A summary description of the operation of the supplier's cost estimating
system (New Projects & Existing/Repeat Projects).

Cost breakdown based upon supplier's estimating system (NonRecurring/Recurring-D.L.; Overhead; Material; Other Direct Cost; G&A;
Profit, etc.). Provide basis of estimate (actual, history, estimate, etc.) for
labor hours

Priced Bill of Material
a. Explanation of method and data used by the supplier in preparing the
BOM
b. Explanation of contingencies, if any.

Explanation of method and data used by the supplier in preparation of direct
labor hour forecast for this purchase order.

Direct labor hour forecast by month and by unit or lot if respective production
is involved.

Basis for forecasting direct hourly rates (Engineering, Manufacturing, etc.).
PWR Fact-Find Questions

Capture Team Success








Basis for forecasting burden rates (Engineering, Manufacturing, etc.)
Actual Burden rates experienced by year for the previous two
calendar years.
Negotiated burden rates experienced by year for the previous two
calendar years and the Government agency with whom such rates
were negotiated (i.e. DCAA) - if applicable.
Analysis of burden pools by account and by year for the previous
two calendar years classified by fixed and variable costs.
Total of direct labor hours or dollars expended by year for the
previous two calendar years.
Forecast of direct labor hours or dollars for the period to be covered
by and including the purchase order together with an outline of the
basis of the forecast.
Actual sales backlog at the beginning of the previous and the current
calendar year.
Profit substantiation.
Was a learning curve applied? What type of curve is used (CUM.
AVG. UNIT, etc.)
PWR Fact-Find Questions

Capture Team Success
How many hours were proposed for the first unit?
 Are there any contingencies in supplier's proposal for labor hours?
 Was there any learning curve applied to material costs?
 Provide support documentation for "driver" items representing 80%
of material cost (i.e. Quote; P.O.; Inventory, etc.)
 Does proposed material provide for mortality? If so, applicable to
all items?
 Does material cost include a handling charge or other burden
application?
 Are there other contingencies in supplier's proposed material cost?
If yes, please describe.
 Basis for forecasting G&A rate
a. Actual G & A rate experienced by year for the previous two calendar years
b. Negotiated burden rates experienced by year for the previous two calendar
years and the Government agency with whom such rates were negotiated
(i.e. DCAA) - if applicable
c. Explanation of the difference between a & b - if applicable
d. Analysis of G & A pools by account and by year for the previous two calendar
years classified by fixed and variable costs.
Capture Team Success
PWR Fact-Find Questions

Other Cost - Provide documentation to support other cost
items if applicable.

Does the proposal contain any unallowable cost (FAR:
31.205)? If so, please identify.

Provide documentation (actual cost or estimated cost at
completion) on current or previous PWR procurements of
the same or similar item.
Capture Team Success
PWR Technical Evaluation of
Supplier Proposals
PWR Technical Evaluation Criteria
Capture Team Success

Technical Evaluations of supplier proposals form the
foundation for subsequent price negotiations

The Technical Evaluation consists of an evaluation of the supplier’s
technical and cost proposals

The Technical Evaluation of the supplier’s technical proposal
is a comprehensive and responsive evaluation of the criteria
set forth in the solicitation

The Technical Evaluation of a supplier’s cost proposal is a
review and assessment by qualified technical personnel of the
following points:

labor mix appropriateness including number of hours and labor
category proposed;
 type and quantities of material proposed;
 special tooling and facilities proposed; and,
 reasonableness and appropriateness of proposed other direct costs
(ODC’s).
Capture Team Success
Ogives and PTL/Funding Profiles
Capture Team Success
PWR Ogive Definition

An Ogive is a frequency distribution of numerical data

Ogives are normally represented on bell curves

Example: If you are plotting 100 hours on a 20/80 Ogive

20 hours (100 x 20% = 20) would fall on the left side of the
bell and 80 hours (100 x 80% = 80) on the right side

Valid PWR / ProPricer Ogives: 10/90, 20/80, 30/70, 40/60,
50/50, 60/40, 70/30, 80/20, 90/10

PWR / ProPricer will spread the data between the start /
stop months based on the selected Ogives
Capture Team Success
Program Termination Liability
(PTL)
Capture Team Success
Background

PWR Estimating Systems Manual

Termination Liability Topics
 What is Termination Liability
 Termination Liability Funding
 Termination Costs
 Termination Cost Risk Coverage
 Special Termination Cost Clause
 Estimating Termination Costs
Capture Team Success
Responsibility
Estimating and Pricing must work with Contracts/Legal
Services and Program Management to ensure that costs
resulting from a potential termination are either
a. Included in requested contract funding and submitted in
the cost proposal.
b. Covered by appropriate contractual language (such as a
Special Termination Cost Clause).
c. Accepted by management as potentially unrecoverable
costs.
Capture Team Success
What is Termination Liability?
Termination liability is the maximum amount the
Government will reimburse a contractor if a contract is
terminated.
It includes cost for contract work that has been incurred
up to the termination date plus termination cost. In the
case of a multi-year contract terminated before
completion of the current fiscal year, termination liability
includes costs for current year contract work prior to the
termination and termination costs for both the current and
out years.
Capture Team Success
Termination Liability Funding
For incrementally funded contracts, the contractor usually
provides the Government an estimate of the funds required
to cover the anticipated contract work plus enough funds to
cover termination costs (not covered by special contract
clauses) for each period of the contract.
The Government will allocate funds to the contract for the
current contract performance period based on the funding
required. Failure of the contractor to adequately forecast
termination costs and include them in the funding
requirement may result in inadequate funds being made
available to cover costs in the event the contract is
terminated.
If this situation occurs, the contractor may not be able to
recover any incurred costs in excess of the funded amount.
Capture Team Success
Termination Costs
There are eight categories of termination costs. Organizations
should use these cost categories to help identify potential
termination costs in their program and make provisions to
minimize the financial risk associated with them. The eight
different categories are
 Before termination costs.
 Costs continuing after termination (FAR 31.205-42(b)).






Initial costs (FAR 31.205-42(c)).
Loss of useful value (FAR 31.205-42(d)).
Rental under unexpired leases (FAR 31.205-42(e)).
Alterations of leased property (FAR 31.205-42(f)).
Settlement expenses (FAR 31.205-42(g)).
Subcontractor claims (FAR 31.205-42(h)).
Capture Team Success
Termination Cost Risk Coverage
A upcoming chart displays the termination costs that have
been historically covered in the PWR termination estimate
(calculated by leading labor and material) or by the special
termination cost clause. Costs in the potentially uncovered
category are not addressed by either of these methods.
If a contract has no special termination cost clause, or has
significant costs in the potentially uncovered category, then
these costs need to be separately estimated and added to
the PWR termination liability line values, (see Figure 8.7-1)
covered by additional contract clauses, or accepted as
potential risks by management.
Capture Team Success
Special Termination Cost Clause
Government contracts and RFPs sometimes include a
special termination cost clause. This clause recognizes
that if the contract is terminated there will be selected
termination costs for which the Government will be
obligated to provide additional funding. This clause usually
contains a not to exceed funding limitation.
Special termination costs are defined by Department of
Defense (DoD) FAR Supplement 252.249-7000.
Contracting agencies have different variations to the
language covering the specific costs included in a special
termination cost clause. Be sure to read the contract
provisions to determine the costs that are covered by the
clause.
Estimating Termination Costs
Capture Team Success
Estimating method-leading cost
PWR typically calculates a termination liability line by leading costs
for PWR labor, interdivisional labor, and supplier costs by set
periods. Lead times are dependent on the particular circumstances
of the individual program. This technique includes in the current
funding request, costs for future periods for which PWR may be
contractually liable. An example of the approach follows.
 PWR labor, associated overhead, and other costs are set
forward a specific period of time, usually one to three months.
 The interorganizational costs are set forward a month, similar
to PWR costs.
 Subcontract, supplier, and direct material costs are set forward
a specific period of time, usually three months. This offset
covers the subcontractor's and suppliers expenditures that
have been performed but not yet billed to the prime contractor.
For major subcontractors termination liability lines should be
requested and compared to the internal calculations.
Adjustments to the internal subcontract values should be made
if required.
Capture Team Success
Estimating Termination Costs
Capture Team Success
PTL Recommendation

Document current processes (All)

Investigate existing processes (DoD)

Develop PTL tools (Review Questionnaire)

Review Termination Liability costs with Programs

Determine Program Termination Liability costs

Price costs in the ProPricer System

Review Termination Liability costs with Management

Present Termination Liability values to customer
PTL Process Description
Typical Six Step PTL Process
Capture Team Success
1.
Identify the following elements of PTL for the Program life from the Business
Operations Budgeting System
A.Total Expenditures (i.e. MPM/SAP extract)
B.Non Labor Costs, Budgeted value including
common budget elements (i.e. G&A,
COM and Fee)
C.Labor Costs, calculated (mathematical difference of A less B).
2.
Determine PTL values
• Identify Labor and Non Labor lead values required to provide PTL
coverage in months (Burn Rate)
Before Termination Costs
Costs Continuing After Termination
Subcontractor Claims
• Identify
any PTL Special Termination Cost Clause values
Costs Continuing After
Settlement Expense
• Identify
(partial de-staffing only)
Termination
any potentially uncover costs
Initial Costs
Loss of Useful Value
Rental Under Unexpired Leases
Alterations of Leased Property
Calculate a PTL by GFY quarter
Review PTL values with Program Management
5. Report PTL values to Upper Mgmt
6. Review and update PTL values as required
3.
4.
Capture Team Success
Completing the PWR Proposal
Capture Team Success
Wrapping Up the Proposal

Create Draft /Prelim Run of Pricing

Write technical proposal based on approved mockup

Submit remaining graphics for login and formatting

Check pricing input for completeness and consistency
to proposal plan

Draft BOEs

Submit preliminary cost data for Pricing/Finance
Management Approval

Review program plan / risk analysis /
T&Cs/cost/business plan with approving executives
Capture Team Success
Create Finished Proposal

Obtain IPT/process organizations approvals for
cost estimates and BOEs

Assemble final proposal

Prepare briefing/documentation for executive
approval

Schedule Repro and Data Management effort

Complete technical, management and cost
proposal packages with all required backup

Identify/confirm delivery arrangements
Capture Team Success
Proposal Submittal

Submit for repro with instructions (include
backup copies)

Verify proposal completeness and prepare
for delivery

Deliver to customer
Capture Team Success
Prepare for Orals and Fact-Finding

Team prepares for orals (if required)

Team responds to CRs & DRs (if any)

BAFO follows same steps as above

PM coordinates PA (or other) budget to
support post submittal activities

Develop BAFO strategy based on above
Capture Team Success
Negotiations

PWR Legal/CA acts as lead to support ALL Negotiation activities

Coordinate all meeting between customer & RD

Documents all issues and responses

Exchanges offers & counter offers

Summarize cost impacts for Mgmt

PM & functions support both as need

Pricer updates C&P data & coordinates disclosures w/ CA

Pricer performs sweeps & certs if applicable

CA completes memo of negotiation
Capture Team Success
Change proposal
Capture Team Success
Change Proposals

Changes occur for a variety of reasons/scenarios

PWR Customer driven change

PWR generated change

Supplier generated change

Not all changes require an equitable adjustment

Equitable adjustment can be schedule and/or price

Adjustments can be increasing or decreasing

Equitable adjustment changes generally are scope or
schedule driven

Terms & Conditions are not re-negotiable
Capture Team Success
Change Proposals

Not competitive

Scope/schedule changes can be incorporated via an
undefinitized change notice (proposal & negotiations to
follow)

A formal RFQ/RFP may be sent by PWR

TINA requirements apply (aggregate value, i.e., $350K
increase + $300K decrease = $650K TINA change
value)

It is not an opportunity to “Get Well.” The equitable
adjustment must only consider the impact of the actual
change.
Capture Team Success
Change Proposals

Pursuant to PO “Changes” clause, supplier obligated to
place change notice into work.

Proposal & Negotiation Process should be timely (FAR
requirement to be complete in less than 180 days –
PWR Goal is 120 days)

Supplier is obligated to present PWR with a fully
documented change proposal within fifteen calendar
days of PO change receipt.