The Development Source

How to develop a Cost/Price Volume and Stay Out of Jail

Most proposals to government agencies in response to Request for Proposals (RFPs) involve a technical volume, management volume, and a cost/price volume.  As Shlomo D. Katz of the law firm of Brown Rudnick, LLP points out, you have three goals in preparing your cost/price volume:  (1) win the contract; (2) design a cost/price volume so that your company makes a profit; and (3) stay out of trouble (jail).

According to Katz, you should follow four basic principles when preparing your cost volume.  They are illustrated below.

Make clear what you are promising to do and what you are not promising to do.  Once a contract is awarded, you will be held responsible for adhering to your cost/price volume.  Therefore, you should make clear what are your actions and assumptions.  For example, you could state the following:  “The following hardware components are included in the price.”

Demonstrate cost/price realism by relating deliverables to your resources.  Government agencies will review your cost/price volume to determine if your cost estimates (1) are realistic for the work being performed; (2) reflect a clear understanding of the requirements; and (3) are consistent with the RFP.  Therefore, you should make sure that all your cost/price items are directly related to the work you describe in your technical and management volumes.  Your cost/price volume must tell the same story as your other proposal volumes, and it must offer costs and prices that are realistic.

Base on your cost/price data on legitimate, publicly accessible information.  FAR 3.104-3(b) states that a “person must not knowingly obtain contractor bid or proposal information or source selection information before the award of a Federal agency procurement contract to which the information relates.”  This lugubrious statement means that you must base your cost/price volume on legitimate information that is legally available to the public.

Avoid promising to deliver anything you cannot deliver.  Most government contracts are either firm-fixed-price or cost-reimbursement contracts.  In a firm-fixed-price contract, you will be reimbursed based on your price/cost volume independent of the actual costs of performing the contract.  If you promise more than you can deliver, you may wind up paying for it out of your company’s pocket.

In a cost-reimbursement contract, you are reimbursed based on allowable incurred costs described in the contract.  If you promise more than you can deliver, you may wind up fighting with the government over what constitutes an allowable reimbursement.

Your cost/price volume should not be an afterthought to your technical and management volumes.  Make sure all the volumes tell the same story, act ethically, and use cost/price realism to win the contract, make a profit, and stay out of jail.


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